Project Materials

THE IMPACT OF GOVERNMENT EXPENDITURE ON STANDARD OF LIVING IN NIGERIA (1982-2012)

Chapter one

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Over time, government expenditure, often known as government spending, has been acknowledged as a crucial tool in enhancing a country’s residents’ level of living.

Various spending on recurring and capital projects, such as school construction, the supply of decent and inexpensive health care, the payment of salaries/casual wages, the provision of good roads, power, and clean water, all influence standard of living (Morris, 1987).

Increased investment on these infrastructures tends to improve a country’s level of living. For example, governmental efforts to reduce mortality may necessitate more public investment, as may educational programs aimed at increasing primary completion rates.

However, what matters is not only how much money was spent, but also how effectively it was spent. A few countries show an inconsistent relationship between changes in public spending and outcomes.

Thailand, for example, has raised public spending on primary education more than Peru, but primary school completion rates have fallen in Thailand while increasing in Peru.

Similarly, a study of Malaysia in the late 1990s revealed minimal correlation between public spending on doctors and infant mortality, while the construction of public schools in Indonesia in the 1970s had no substantial positive impact on school enrolments.

After controlling for national wealth, the cross-country relationship between public spending and outcomes is found to be both statistically and substantively poor. The message is not that public funding cannot be successful; rather, it requires dedication and suitable policies, supported by effective public spending, to achieve these objectives.

Public spending is not always effective in providing quality services and reaching the intended recipients, who are frequently the poor, which contributes to the spending-outcomes gap. Another cause of such a weak link is the interplay between the private and public sectors.

Increasing public provision may simply push out, in part or whole, equally effective services provided by non-governmental organisations. Unless resources are provided to support services that benefit the poor, public funds spent on these services will not yield the best results.

If more public funds are spent on services, and more of that money is spent on services used by the poor, the spending pattern will influence the effectiveness of the spending. For example, wages and salaries for teachers account for 75% of recurring public education expenditure.

There is no doubt that teachers’ play a significant part in the schooling process and given;them proper incentives is important; nonetheless, spending on other vital input(such as textbooks) is equally important.

Spending too much money on one input will reduce the quality of learning. To overcome this, governments must address not only the technical or administrative issues of how much to spend on one input vs another, but also the institutional and political factors that influence these decisions (Son, 2009).

1.2 Statement of the Problem

Most poor Nigerians do not receive an equitable proportion of government spending on public services such as health and education. Benefit incidence analysis of public expenditure provides a more complete picture of who benefits from government expenditures.

Evidence strongly implies that the poorest fifth of the population receives less than a fifth of education and health expenditures, whereas the richest fifth receives more: 46% of education spending, and the lowest receive only 11% (Filmer 2003). Similarly, in some developing countries, such as India, the richest eight receive three times the lowest eight’s health-care subsidies.

One reason for this imbalance is because expenditure is biassed towards services mostly used by the wealthy; another reason is that, while channelling public money towards services used by the poor is beneficial, such programs may not reach the intended users.

1.3 RESEARCH QUESTIONS

The research questions designed to steer the project are:

Does government spending have a substantial impact on the standard of living in Nigeria?

Has government expenditure helped to raise the standard of living of its citizens?

Has the government’s spending on education and health care had a major impact on Nigerians’ living standards?

1.4 Research Objectives

The primary goal of the research is to investigate the impact of government spending on the standard of living. The specific aims of the study are:

The purpose of this study is to look at how government spending affects the Nigerian level of living.

To examine whether increased government spending has improved Nigerians’ level of living.

The purpose of this study is to determine whether government spending on education and health care has had a major impact on the Nigerian level of living.

1.5 Research Hypothesis

Ho: There is no significant association between government spending and the standard of living in Nigeria.

Hi: There is a strong link between government spending and standard of living.

Ho: Increased government spending has no substantial impact on Nigerians’ standard of living.

Hi: Increased government spending has a substantial impact on Nigerians’ living standards.

Ho: Government expenditure on education and health care has no substantial impact on Nigeria’s standard of living.

Hi: The government’s expenditure on education and health care has a substantial impact on Nigeria’s standard of living.

1.6 Significance of the Study

The study looks at how government spending affects the standard of living in Nigeria. Many studies have been conducted on government spending and its impact on Nigeria’s economy, but the researcher is attempting to add a new dimension to it by breaking down the variables into a specific economic indicator-standard of life.

The study will emphasise the varied effects of government spending on the standard of life and overall well-being of Nigerians. Various government bodies directly responsible for the country’s planning and budgeting will find the study valuable for monetary control in the economy.

The study would also be valuable for student researchers who wish to undertake research on government expenditures and how they effect Nigeria’s level of living.

Because there has not been enough research in this area, the researcher believes it is appropriate to investigate and offer possible policies that may be beneficial.

1.7 SCOPE OF THE STUDY

This research examines the impact of government spending on the Nigerian economy’s level of life over a 30-year period. A comprehensive overview of government capital and existing project expenditures serves as the project’s foundation.

The study will include a variety of economic variables from 1982 to 2012, including GDP, standard of living, inflation, and government expenditure.

1.8 Limitations of the Study

Time was a crucial barrier in the study. Combining academic work and research was tough for the researcher, therefore gathering data to do the research was challenging.

1.9 Definition of Terms

Capital expenditure refers to investment on permanent assets such as roads, schools, hospitals, buildings, plants, and machinery, the benefits of which are long-term.

Capital stock refers to the total worth of an economy’s fiscal capital, which includes both inventories and equipment.

Capital: Human-created resources (machines and equipment) utilised to manufacture goods and services.

Classical economics refers to macroeconomic generalisations accepted by most economists prior to the 1930s that led to the conclusion that a capitalistic economy would fully utilise its resources.

Current expenditure includes wages and salaries, supply and services, rent, pensions, interest payments, and social security payments. These are typically classified as consumable items, with the benefits spent within a single fiscal year.

A dependent variable is one that varies in response to a change in one or more other (independent) variables.

Direct relationship: A relationship between variables that change in the same way.

Economic growth refers to an increase in real output or real output per capita.

Economic growth refers to an increase in an economic indicator that often persists over time. The variable in question could be either real or nominal GDP.

Economic model: A simplified image of reality that depicts an economic condition.

Economic policy: A plan of action designed to solve or prevent a problem.

Economic resources include land, labour, capital, and entrepreneurs, all of which are utilised to produce commodities and services.

An expanding economy is one in which net domestic investment exceeds zero.

Fiscal policy is the use of taxes and government spending to shape the economy.

Government expenditure refers to the expenses incurred by the government for its own maintenance, as well as for the benefit of society and the economy in general.

Government spending: Spending by the government at whatever level. It includes spending on real products and services purchased from third-party suppliers; spending on employment in state services such as administration, defence, and education; spending on pension transfer payments; spending on community services; and spending on economic services.

Gross Domestic Product (GDP): The monetary value of products and services produced in an economy over a period of time, regardless of population.

Growth model: This is a simple approach for stimulating some parts of the actual economy.

Growth rate: The proportionate or percentage rate of rise of any economic variable during a given time period, often a year.

An independent variable is one that causes a change in another variable.

Industrially Advanced Countries (IACs) are countries such as the United States, Canada, Germany, Japan, and Western Europe that have created market economies based on substantial inventories of technologically advanced capital goods and a skilled labour force.

The International Monetary Fund (IMF) is an international organisation of states that was established after World War II to lend foreign currency to countries with temporary payment deficits and to administer adjustable pegs.

Investment is defined as spending on capital goods and adding to inventories.

Keynesian economics: The macroeconomic generalization which lead to the conclusion that a capitalistic economy does not always employ resources completely.

Labour productivity: Total output divided by the quantity of labour employed to produce the output.

Market failure is a label used to describe the belief that the market does not provide a solution to all economic problems.

Market forces are the forces of supply and demand that determine the market’s equilibrium quantity and price.

Monetarism is a macroeconomic perspective that holds that variations in aggregate output and price level fluctuations are primarily caused by changes in the money supply.

Neo-classical economics is the hypothesis that, while unplanned price level changes might produce macroeconomic instability in the short term, the economy remains stable at full employment levels of domestic output in the long run due to price and wage flexibility.

Nominal GDP: GDP at current base prices minus indirect taxes, net of subsidies.

Poverty is defined as the inability to meet basic consumer needs.

The price level is the weighted average of the prices paid for an economy’s final commodities and services.

Interest rates are the prices paid for using money or capital.

Transfer expenditures include pension, subsidy, loan interest, disaster relief, and other expenses. Transfers are defined as the redistribution of resources between individuals in society, with the resources passing through the public sector as an intermediary.