GOVERNMENT EXPENDITURE AND ECONOMIC GROWTH IN NIGERIA (1981 – 2015).
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GOVERNMENT EXPENDITURE AND ECONOMIC GROWTH IN NIGERIA (1981 – 2015).
Chapter one
INTRODUCTION
1.1 Background of the Study
Government expenditure, without a doubt, is a vital tool for a government to regulate the economy of a nation. Economists have been well aware of the effects in fostering economic growth.
Anyway, the general view is that government spending, particularly on social and economic infrastructure, can boost growth, whereas financing such spending to provide essential infrastructural facilities such as transportation, electricity, telecommunications, water and sanitation, waste disposal, education, and health can stifle growth (Olukayode, 2009).
Today, the relationship between government expenditure and economic growth continues to produce sense or debates among experts in the economic literature (lnuwa, 2012).
According to him, the nature of the impact of government expenditure on economic growth is in conclusion, and from the point of view of the student researcher is still in dispute.
In fact, several authors and academics concluded that the influence of government spending on economic growth was negative or insignificant (Tuban, 2010). Others said the influence was favourable and significant (Alexiou, 2009).
The Nigerian government’s expenditure structure can be divided into two categories: capital expenditure and recurrent expenditure. Recurrent expenditure refers to government expenses for administration, such as labour, salaries, loan interest, maintenance costs, and so on.
However, costs on capital projects such as roads, airports, education, telecommunication, electricity, generators, and so on are commonly referred to as capital expenditure (Muritala, 2011).
Ironically, the impact of government expenditure in Nigeria on economic growth remains a mystery and an unsettled topic, even theoretically. This is an unresolved issue. Although the theoretical opinions on the matter are extremely numerous, the prevailing wisdom is that or expenditure is a cause of economic instability or stagnation.
Empirical research does not provide conclusive support for conventional wisdom; a few studies report a position and significant negative relationship between government spending and economic growth
while others find a significantly negative or no relationship between an increase in government spending and growth in real output. Against this backdrop, the study seeks to empirically assess the influence of government spending on economic growth in Nigeria.
Nigeria is a growing country with dynamic changes in government expenditure policy throughout time. These recurring shifts in fiscal policy administration are largely reflected in the manner in which governance has passed from civilian to military control.
Also, when the fiscal unit in the economic system changed, so did the trend of expenditure. Nigeria’s economy is market-based, with the government responsible for fostering an enabling climate in which businesses can thrive and contribute to the country’s economic progress.
As a result, the primary duty of government is to provide extended services and infrastructure, which encourages investment and increases the economy’s productive capacity.
Government expenditure has increased geometrically during the last few decades as a result of various government operations and interactions with its Ministries, Departments, and Agencies (MDAs) (Niloy 2003).
Although the general view is that government expenditure, either recurrent or capital expenditure, notably on social and economic infrastructure, can be growth-enhancing, the financing of such expenditure to provide essential infrastructural facilities–including transport, electricity, telecommunications, water and sanitation, waste disposal, education and health–can be growth-retarding (for example, the negative effect associated with taxation and excessive debt).
The extent and structure of government spending will impact the pattern and nature of economic growth. Nigerian government expenditure can be divided into two categories: capital expenditure and recurring expenditure.
Recurrent expenditure refers to government spending on administration such as labour, salaries, loan interest, maintenance, and so on, whereas capital expenditure refers to expenses on capital projects such as transportation, roads, airports, education, telecommunications, and energy generation, among others.
One of the primary goals of public expenditure is to create infrastructure, and maintaining these facilities costs a significant amount of money.
The relationship between government infrastructure spending and economic growth is a critical analysis in developing nations, the majority of which have seen increases in government spending over time (World Development Report 1994).
According to Oni and Okanlawon (2010), Nigeria’s economy indicates that transportation expenses account for a considerable amount of the final price of most goods, including agricultural, manufacturing, and mining products.
They discovered that, on average, transportation costs more than 30% of the value of the delivered goods. The high cost is due to Nigeria’s inadequate and inefficient transport infrastructure.
Transport expenditures on feeder roads to trunk highways and railways to the post office can typically account for 55 to 60 percent of commodity receipts. In addition, Nigeria’s transport system has a high price elasticity of demand.
The cost of transportation decreases as the transportation network becomes more efficient. Currently, vast quantities of economically vital items are produced in the form of low-value agricultural and mining products.
The truth is that transport infrastructure must span multiple sectors and is critical to economic growth and development. The country’s infrastructure for economic development falls well short of matching the expectations of the average Nigerian investor. This hinders investment and raises the cost of conducting business.
However, economies in transition invest extensively on physical infrastructure to increase people’s economic welfare and facilitate the production of products and services across all sectors of the economy, hence stimulating rapid growth in aggregate output.
Empirical research (Ram, 1986; Deverajan 1993; Niloy 2003) have demonstrated a favourable association between economic growth and government spending on infrastructure, particularly in the transport sector.
1.2 Statement of the Problem
The Nigerian economy’s transport industry faces a number of challenges. These issues are of major interest to economists and the government as a whole. The transport sector acts as both a source of foreign income and a way of transporting goods and services to the country’s nooks and crannies.
The transportation industry includes air, marine, and land transportation systems. In Nigeria, road transportation is the most often used mode of transportation. As a result, the federal, state, and local governments have worked to build road transport infrastructure throughout the federation.
However, a lack of financial facilities has been cited as a major barrier to improving transit in Nigeria. In order to stimulate the development of the transport industry, the federal government has implemented numerous plans and policy guidelines to provide specific amenities.
Transportation infrastructures (roads, rail, airports, and seaports) serve as conduits for the free flow of people, commodities, and information, all of which are essential in a manufacturing and export economy.
If eyes are the source of light for the human soul, airports and seaports are the eyes through which foreign business visitors observe a country. It’s anyone’s idea how vital transport infrastructures are to the manufacturing economy.
The domestic demand for transportation infrastructure creates the opportunity to become an important link in the regional transportation system for the transit of goods manufactured in rural areas.
There is a need to revitalise waterway and railway traffic. A country cannot become an industrial powerhouse without well-connected inner perimeter highways, airports, seaports, and railway terminals. Some of the issues encountered in the transportation sector include:
i. For decades, the neglect of rail and rivers has contributed to the country’s reliance on food imports, as agricultural produce from one section of the country cannot be transferred economically to another.
ii. A lack of low-cost transportation has discouraged many farmers, whose crops have failed due to a lack of market access, allowing agricultural produce to be carried cheaply to urban markets.
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