Frontiers of Accounting and Finance

Government Spending and Economic Growth Process in Nigeria

Monogbe Tunde G, Okah O. John


This study empirically investigates the effect of government spending on different sectors of the economy and their responsive
contribution to economic growth between the periods 1970 and 2015 using various components of government expenditure
(i.e., expenditure on administration, economic service, social and community service and transfer). The study uses parsimonious error correction model, corrolegram test and granger causality test among orders. The output of the parsimonious error correction model reveals that all the explanatory variables under investigation failed the test of hypothesis judging by 5%
level of significant except for government expenditure on social economic services, which exhibit a significant relationship to
economic growth at both lag values. The output of granger causality test reports the existence of unilateral causality nexus
between economic growth and expenditure on economic services in favour of gross domestic product. The result of the
causality test validates the postulation of Wagner (1958) whose theory exerts that as the economy is experiencing growth,
government expenditure on various sectors of the economic increases. The study then concluded that increase in government
expenditure on social community services and economic services is capable of promoting economic growth in Nigeria; hence,
the study recommends that Government should make effort to diversify the economy by investing more on social community
service and economic service sectors so as to limit over dependency on the oil sector that cannot boast of accommodating
0.001% of the Nigerian population.


component of government expenditure, vector error correction model, economic growth

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