Pattern of Government Recurrent Expenditure and Economic Growth in Nigeria

Abstract

The main objective of this study is to examine the effects of recurrent expenditure components; namely, Administration, Social and Community Services, Economic Services and Transfers, on economic growth in Nigeria. The VAR methodological framework is employed while the empirical data cover from 1981 to 2016. The results show that while GDP responded positively to a one standard deviation shock to recurrent expenditure on administration, it responded negatively to a one standard deviation shock to recurrent expenditure on both social community services and transfer. GDP has almost zero response to a one standard deviation shock to recurrent expenditure on economic services. The results further show that most of the GDP shock are due to own effect. Compared to other components of recurrent expenditure, the relative contribution of recurrent expenditure on transfer to GDP innovation is highest in the second period while the relative contribution of recurrent expenditure on administration is highest in the third and fourth periods. However, the Granger Causality test shows that recurrent expenditure components none has a causal impact on GDP both individually and collectively. Therefore, the Keynesian view that public expenditure is a veritable fiscal tool for promoting and enhancing economic growth is not supported. The policy implication of our findings is that Federal government can only achieve the desired growth in economic activities using fiscal policy if the recurrent expenditure component of public expenditure is reduced. Further, the proportion of recurrent expenditure that is allocated to economic services should be increased while the proportion that is allocated to bot social community services and transfer should be decreased.