The debate on the relationship existing between economic growth and public expenditure (also referred to as public expenditure in this study) has been ongoing for decades and the explosive increase in public expenditure across regions has necessitated the need to ascertain this relationship in the country [5]. Public expenditure remains an important instrument utilized in the process of development. It plays a pivotal role in the functioning of any economy at almost all stages of growth and development. Most developing and developed countries today use public expenditure to improve income distribution, direct the allocation of resources in desired areas and influence the composition of national income. In developing countries for instance, the variation in government spending pattern is not only projected to guarantee stabilization but also to spur economic growth and expand employment opportunities [6]. Public expenditure is an important instrument for government to control the economy. It plays an important role in the functioning of an economy whether developed or underdeveloped. Public expenditure was born out of revenue allocation which refers to the redistribution of fiscal capacity between the various levels of government or the disposition of responsibilities between tiers of the government [5].

The goal of every economy is to maintain a high level of employment, stabilize prices, promote rapid growth of gross national product, maintain favourable balance of payments position, promote a free market economy, satisfy collective demands, redistribute income equitably, promote infant industries, the encourage the priority sector, encourage balance population development and promote labour and capital development [7].

This explains why the expenditure of governments the world over has maintained a consistent upward trend. This continuous increase in the volume of public expenditure is targeted at expanding the functions of government through the direct investment in industrial innovations, public health, education, commercial activities, etc. with a view to achieving growth [5]. Aluthge et al. [8], posit that public expenditure is assumed to be the most powerful economic factor of all modern societies. The form and pattern of the output growth of any economy is determined by the structure and size of its public expenditure.

The Nigerian public expenditure structure can be segmented into recurrent expenditure and capital expenditure. The components of the recurrent expenditure include expenditure on administration. (Interest on loans and maintenance, salaries and wages) while capital expenditure captures government projects on the generation of the electricity, education, telecommunication, airports, roads and so on [9]. The provision of public infrastructural facilities has been one of the fundamental bases for public spending. Providing and maintaining these infrastructural amenities cost a huge amount to finance. Hence, investment on infrastructures and productive activities spending is expected to positively contribute to the growth of the economy whereas spending on consumption by the government retard growth. It is argued that the country will benefit socially and economically from government investment (spending) on health, roads, education, agriculture, etc. Among the world of scholars, the issue of impact of public expenditure on the growth of the economy has sponsored continuous debate [5].

Governments have been found to be involved in two basic functions, that is, the protection functions (security) and the provision function [10]. Government protection functions include the establishment of the rule of law and property rights enforcement. Within this function, the security of lives and properties are offered, the criminality risk is minimized and the country is secured from external aggression. The provision functions centre on the provision of public goods and services that include power, road, health and education. For instance, the expenditure of government on education and health engenders labour productivity and increases national output growth. Similarly, infrastructural expenditure on power, roads, communication, etc, reduces the costs of production, facilitates the development of the private sector and industrial profitability, hence, fostering the growth of the economy [11].

The enormous effects of public expenditure on economic growth have continued to attract attention of the economists recently. Ordinarily, public expenditure lends to the reduction in poverty level, standard of living improvement for the citizens, equality in the distribution of income, the overall wellbeing improvement and the growth of the economy. Government engages a number of policy measures as economic interventions which include market failure bailout or social equity improvement via resources redistribution. And the only government can embark on these intervention measures successfully is through expenditure [12]. However, public expenditure allocation without due consideration to the rising needs of the economy is bound to bring about huge distortions in the economy which may retard growth [13].

Expenditure as an expression of Gross Domestic Product (GDP) is regarded as the measure of the direct involvement of government in the entire economic activity. Expressing expenditure as a proportion of GDP is beneficial in two ways. First, it makes available the basis for comparing spending analysis overtime. Expenditure as a proportion of GDP unlike the nominal naira provides the basis of comparing meaningfully, the relative use of resources between years. Second, it further reveals relatively, the degree/extent of the intervention by government in the economy and also aids in social choice analysis [14]. Broadly speaking, public expenditure affects aggregate resources use together with monetary and exchange rate. Specifically, public expenditure refers to the value of goods and services provided through the public sector.

The size of public expenditures and its effect on economic growth and vice versa, has been an issue of sustained interest for over decades now. The relationship between public expenditure and economic growth has continued to generate series of debate among scholars. Government performs two major functions- protection (and security) and provisions of certain public good [15]. Scholars such as Al-Yusuf and Couray, Abdullah [16], Ranjan and Sharma, [17] and Cooray [18], argue that increase in public expenditure on socio-economic and physical infrastructures encourage economic growth. For example, public expenditure on health and education raises the productivity of labour and increase the growth of national output. Similarly, expenditure on infrastructure such as roads, communications, power, etc, reduces production costs, increases private sector investment and profitability of firms, thus fostering economic growth. Thus, the expansion of public expenditure contributes positively to economic growth.

The general view is that public expenditure either recurrent or capital expenditure, notably on social and economic infrastructure can be growth-enhancing. The provision of infrastructure services to meet the demands of business, households and other users is one of the major challenges of economic development in developing countries like Nigeria. Government spending in Nigeria has continued to rise due to the huge receipts from production and sales of crude oil and the increased demand for public (utilities) goods like roads, communication, power, education and health. There is increasing need to provide both internal and external security for the people and the nation. Available statistics show that total public expenditure (capital and recurrent) and its components such as expenditure on administration, expenditure on economic services, expenditure on social and community services and expenditure on transfers, have continued to rise in the last three decades. The various components of capital expenditure have risen between 1981 and 2021. This work examines the effect of these various dimensions of expenditure on the growth of the Nigerian economy, measured as Gross Domestic Product (GDP).

Statement of The Problem

The huge expenditure profile of the government over the years is sufficient enough to boost productivity in all sectors and facilitate growth. Government spends substantial resources in both human and material resources with the aim of improving the nation’s infrastructural facilities, boosting social welfare and empowerment packages of the masses, employment generation, as well as creating enabling environment to facilitate the growth of private investment. However, despite the amount spent by the government in administration, economic services, social and community services and transfers, economic growth in Nigeria seems to be more of a story than reality.

While public expenditure is increasing in geometric progression, economic growth is increasing at arithmetic progression. This is compounded by the poor power supply, bad roads networks, huge uncompleted and abandon projects, high cost of input for the productive sector, huge corporate tax burden, misappropriation and corruption and embezzlement. Firms in Nigeria invest so much in electricity generating plants and pay heavily to transport their raw materials to site and finished products to the market due to poor power supply and road networks. As a result of this, many firms are folding up day after day, unemployment is increasing rapidly, disincentive to embark on innovative activities and productivity is high, macroeconomic variables like exchange rate, national savings, inflation and balance of payments are indicating that the economy is performing poorly and the standard of living of the average Nigerian is falling continuously. It is in the light of this that this study is intended to examine the impact of public expenditure on the growth of the Nigerian economy.

Nigerian public expenditure has been consistently rising and after each year, the budget would increase and so, the expenditure would do the same. Yet, there is the temptation to question what aspect of the economy such huge level of expenditure really effects of improves. In spite of huge expenditure programmes undertaken by the government, most of our infrastructures are in decay. The roads are bad, hospitals poorly rehabilitated and equipped with the necessary resources; the schools are in disrepair and in poor conditions, etc. the energy sector is not optimally supplied to support and boost the industrialization strategies designed by the government. We need to investigate which of these sectoral expenditure programmes that are significantly affected by the public expenditure. A great effort has been made to carry out an in-depth study of what determines the size of government in Nigeria and the impact of public expenditure on economic growth. There is also the need to find the how shocks from public expenditures transmit to other macroeconomic variables. The capacity of the models used in this research to determine these areas of research interests in the links between public expenditures and economic growth justifies the strength of this research for policy advocacy and policy making.

Furthermore, though public expenditure has increased rapidly in the last two centuries in every nation and even though its growing role and importance cannot be neglected in national economies, the area of public (government) expenditure remains a complex and debated area of study. This is true especially considering existing literature in Nigeria and other countries. Existing studies have produced conflicting results and no consensus has been reached about the nature of the relationships between public expenditure and economic performance. Empirical evidences on the effect of public expenditure on output growth especially for developing economies like Nigeria, present two opposing views, some suggesting that public expenditure has negative effect on output growth [19]. In contrast, other studies established that public expenditure promotes output growth and development of a country [20].

The conflicting results can be attributed to differences in methodological approach, scope, or dataset. Irrespective of which of the argument may be more convincing, what remains obvious is that there is need for further studies to go beyond their specifications and methodologies. Thus, the focus of this study is to empirically investigate the impact of public expenditure on economic growth in Nigeria using latest data and Error correction model. The rising public expenditure may have not translated to meaningful growth and development, as Nigeria ranks among the poorest countries in the world. In addition, many Nigerians have continued to wallow in abject poverty, while more than fifty percent live on less than US$1per day. Moreover, macroeconomic indicators like balance of payments, import obligations, inflation rate, exchange rate and national savings reveal that Nigeria has not fared well in the last three decades. It is disturbing to note that public expenditure seems to have not replicated same level of economic growth in Nigeria. Thus, public expenditure growth rate has been greater than GDP growth in the same period. Based on the above, this research work attempts to investigate whether increasing government spending induces economic growth performance in Nigeria between 1981 and 2020.

Research Hypotheses

The following hypotheses are formulated in the null for testing in the study:

• Ho1: Expenditure on administration does not have significant impact on Gross Domestic Product (GDP) in Nigeria

• Ho2: Expenditure on economic services does not have significant impact on gross domestic product (GDP) in Nigeria

• Ho3: Expenditure on social and community services does not have significant impact on gross       domestic product (GDP) in Nigeria

• Ho4: Expenditure on transfers does not have significant impact on gross domestic product (GDP) in Nigeria

Literature Review

Conceptual Framework

Public Expenditure: Generally, public expenditure is defined as the spending by a government on collective needs and wants such as wages and salaries, infrastructure and basic human needs that assist economic agents to make a living. Specifically, the definition for the concept of public expenditure can be divided into two categories – narrow definition and broader definition. On the narrow definition, public expenditure is seen as the act of providing goods and services to individuals in the country. The broader definition also entails the narrow definition in addition to public sector induced expenditures. Thus, it includes government rules and regulations to internalize externalities and by so doing forces the private sector to spend on the economy. Public expenditure includes public expenditures on all sectors of the economy such as defense, education, health, sports, etc.

Public expenditure, can be grouped into sector expenditures such as administration, defense, internal securities, health, foreign affairs and each sector incurs both a capital and recurrent expenditure component. In view of this, public expenditure can be categorized into two broad forms. These forms are recurrent expenditure and capital expenditure. Recurrent expenditure can be subdivided into non-interest and interest payment recurrent expenditure while capital expenditure is made up of domestic-funded and foreign-funded capital expenditure.

Public expenditure refers to all expenses made by the government of any country on the satisfaction of the needs of her citizens. Ajie et al. [21], defines it as the expenditure incurred by public authorities like central, state and local governments to satisfy the collective social wants of the people. Emerenini defines it as the expenses the government incurs in own maintenance; helping other countries and in regulating the activities in the country. It includes all expenditure by the government but excludes inter government transfers, thus limiting it to public expenditure on goods and services and transfers to the non-government sector of the economy.

In developing countries like Nigeria, public expenditure policy not only accelerates economic growth and promotes employment opportunity, it also plays a useful role in reducing poverty and inequalities in income distribution [21]. It can be financed through taxes, public debt, money emission, international aid and so on. In a democratic economy like Nigeria, Public expenditure is expected to express the will of the people as managed through political parties and government institutions, even though in reality, it is sometimes characterized by high degree of legislature which tampers the will of the current majority of the populace.

Through its continuous involvement and intervention in the economy, the government through its public expenditure policies contributes to current effective demand of goods and services and also expresses a coordinated impulse on the economy, which can be used for stabilization, business cycle inversion and for growth purposes. Through its capital components, public expenditure also gives rise to positive externalities in the economy and society at large.

Furthermore, under the Medium-Term Expenditure Framework, public expenditure can also be grouped into two components. These are the discretionary and statutory components. Discretionary expenditures are those payments under which the government can exercise some judgement with respect to the quantum of resources it allocates to such items. In any fiscal year, commitments to discretionary expenditure are based on the priorities of the government at the time and availability of resources for the purpose. Statutory expenditures are also obligations defined by legislative instruments or backed by law. Discretionary expenditures include personal emoluments, administration and service, total investment, VAT refunds and the likes while statutory expenditures include external debt service, domestic interest payments, transfer to household, road fund, education trust fund, petroleum related fund and the likes.

Categories of Public Expenditure

There are two broad categories of public expenditure: capital and recurrent.

Capital Expenditure

Capital expenditure refers to the expenditure on fixed assets, infrastructure and commodities that have a long-term effect on the economy. Expenditures such as the building of schools, construction of roads, setting up of hospital, establishment of factories and the likes are examples of government capital expenditure. Thus, these kinds of expenditures are done on goods that have lasting impact on the economy and helps provide a more efficient productive economy [22]. Investopedia dictionary defines capital expenditure as the funds used by a government to acquire or upgrade physical assets such as property or investments by a government. These funds are sometimes used to increase the scope of a physical asset or prolong the useful life of an existing capital asset.

In Nigeria, capital expenditures comprise of two broad categories. They are domestic and foreign-financed expenditures [10]. Government finance certain projects by borrowing domestically from financial institutions within the country, through treasury bills and the bond markets or from the revenue from taxes, foreign exchange and the Internally Generated Fund of departments. Characteristically, capital expenditure receives a smaller number of resources from the government purse every year as compared to recurrent expenditure [10].

Recurrent Expenditure

Recurrent expenditure refers to all payments other than for capital assets, made on goods and services which include wages and salaries, employer contributions, interest payments, subsidies and transfers [14]. Government recurrent expenditure on goods and services is expenditure, which does not result in the creation or acquisition of fixed assets (new or second-hand). It consists mainly of expenditure on wages, salaries and supplements, purchases of goods and services and consumption of fixed capital. So government recurrent Expenditures or Government final consumption expenditure on goods and services for current use is to directly satisfy individual or collective needs of the members of the community [14].

Recurrent expenditure can be categorized into non–interest recurrent expenditure and interest payment recurrent expenditure [8]. Non–interest recurrent expenditure is one sub-component of the recurrent expenditure in which its spending does not incur any further interest spending in the course of their payments. This sub-component includes personal emoluments, administrative and service cost in public sector, payments to organisations on government subventions, government transfers and utility price subsidies. Among the expenditure items under non-interest recurrent expenditure, personal emoluments which normally contains the wage bill receives about 60 percent of the total non-interest recurrent expenditure and about 12 percent of GDP.

Non-Interest recurrent expenditures are generally operational expenses and are vital in the day-to-day operations of government institutions. Since it forms part of the government’s discretionary expenses the trend of their increase varies over time depending on the priority of the government. One important aspect of the non-interest recurrent expenditure is the wages and salaries of government workers as a result of the establishment of the Single Spin Salaries Scheme [8].

Composition of Public Expenditure in Nigeria

Public expenditure means expenses incurred by the government for its own preservation; the expenses can be social as well as economical. The public expenditure should reveal the policy choice of the government. The cost of carrying the policies is determined by the decision of the public expenditure on type and quantity of goods and services provided by the government. The justification behind the need for public expenditure is related to the existence of externality associated with the market failure. Thus, without market failure there is no rationale for the additional public sector investments to be more productive than investment of private sector. Public expenditure on public services has a reflective effect on standard of living of the people and life opportunities. The objective of expenditure on public service is the provision of chance to the citizen to realize the potential associated on that service and strengthening a competitive economy. The government objective for public expenditure should cover both elements of equity and efficiency.

There is argument that improvement of efficiency must not be realized on the expenses of equity. Conversely inefficiency in the provision of government service has the result that chances for improved equity are missing because of uneconomical use of resources. This consequence may worsen to the extent that financing and provision of public service crowds-out the private sector and finally reduce economic growth. This in turn reduces the availability of resources to undertake the social programs. Additionally, financing and provision of services is not basically concerned with the redistribution of income but also the provision of equal opportunities and incentive for merit and effort. Public expenditures can be characterized by two broad categories namely development expenditure and recurrent expenditure. Development expenditures are those which correspond with government development activities like investment on infrastructure, education, health, communication and agriculture [3].

Economic Growth

Economic Growth refers to the ability of an economy to improve its production of goods and services over a period of time using the factors of production within the economy. Economic Growth is usually calculated in real terms thus inflation-adjusted terms – to eliminate the distorting effect of inflation on the price of goods produced.

Kimberly [23], defines economic growth as an increase in the productive capacity of a state in terms of production of goods and services over a specific period of time. The economic growth of a nation or state can be measured using gross domestic product. This measure takes into account the country's productive capacity and output. The gross domestic product uses all goods and services that are produced in the country. Maingi [24], opines that economic growth is caused by many factors; however, they are more associated with higher rate of investment by the private or government sector than on other factors like; consumption spending, higher school enrollment rates and greater political stability. This proposition has altered the neo-classical view about causes of growth, which they believe can occurs as a result of technical change caused by chance, but economic growth can be fostered and promoted by appropriate policies. investment and research and shifting resources from government consumption to government investment and provide the enabling environment for private sector to drive the growth. Government policies can be targeted toward enhancing the economic growth rates by taxing consumption, subsidizing However, government policies can deter the level of economic growth, for instance, government borrowing to finance recurrent expenditure, high tax rate for companies, lack of investment in capital stock, high exchange rate and interest rate.

Jhingan [25], defines economic growth as the quantitative sustained increase in a country’s per-capita output or income which is accompanied by increase in labor force, consumption and volume of trade. Andohol [26], supports this definition as he posits that, economic growth is the process which leads to sustained increase in the output of goods and services per head. On the other hand, Todaro and Smith [27], define economic growth as the increase in the market value of goods and services produce by economy over time. It is conventionally measured as the percentage of increase in real Gross Domestic Product (GDP).

Figure 1: The Link Between Public Expenditure Composition and Economic Growth

Theoretical Framework

The study is however anchored on the Keynesian theory of public expenditure.

John Maynard Keynes [28], formulated a theory, which supports government serious participation in economic growth and development. Specifically, he postulated that in order to correct prolonged unemployment and depression in an economy, government has to intervene in the economy through taxation and public expenditures in order to promote output, growth and employment. He also pointed out that to solve the problems of unemployment in the economy, which is a situation where output is below full employment level, an appropriate fiscal policy measure must be taken. This type of policy could be either raising public expenditures or cutting taxes or combination of both. It needs be said that government of many countries accepts fiscal policy as an effective management instrument for government revenue mobilization and utilization. The policy consists of two components, changes in public expenditure and changes in taxation.

In Keynesian theory, spending is what stimulates output and thus creates employment and generates income. This theory is based on the fact that aggregate demand, which is total spending, induces business firms to supply goods and services. If therefore total spending in an economy decline arising either from pessimism about future economic environment or from saving more of the current income, the business firms will respond by cutting down production. Thus, less spending results in a fall in output. This of course leads to a decline in many other macroeconomic variables.

The theory indicates that variation in public expenditure has a direct effect on income through the multiplier. Therefore, public expenditure is an important component of aggregate demand. Moreover, increase in government taxation, tax rate or lump sum tax has a negative impact on economic activity. Thus, whereas increase in public expenditure promotes economic activity, increase in taxation has opposite effect of decreasing economic activity, given that taxation is withdrawal from income stream while expenditure is an injection. This therefore shows that the use of fiscal policy through changes in public expenditure promotes economic activity and hence growth at all levels.

Empirical Review

Olonite et al. [29], examined the relationship between public spending and economic growth in Nigeria. The study used the secondary data from CBN 2018. The Real Gross Domestic Product formed the dependent variable and the independent variable of interest were the Capital Spending on Economic Services and Spending of Transfers. The variables were validated by conducting the unit root test using the Augmented Dickey Fuller (ADF) and Phillips Perron Test (PP) and the correlation coefficient were determined using STATA and the Pearson Product Moment Correlation. A multiple regression model was employed for the study and was analyzed using the Generalized Least Squares (GLSs) with the aid of Eviews 11 statistical program. The results of the study indicated that Capital Spending on Economic Services has a positive and significant impact on Economic Growth while Spending on Transfer has a negative and insignificant impact on Economic Growth. The study recommends that Capital Spending on Economic Services should be maintained and increased and Spending on Transfer should be made Zero, also, the government should develop the refineries to start mass production in order to null off the negative effect of transfers (subsidy payment on oil import and price equalization).

Okpabi et al. [7], examined the impact of public expenditure on economic growth in Nigeria for the period, 1984-2015 with view to re-assess the Keynesian and Endogenous Growth Models proposition that public expenditure stimulates economic growth. The study employed Johansen co-integration and Error Correction Model. The empirical results showed that public (recurrent and capital) expenditure has significant positive impact on the growth of the economy in the long run and an insignificant negative impact on the Nigerian economy in the short run, reinforcing the Keynesian and Endogenous Growth Models that public expenditure stimulates economic growth in Nigeria when seen in the long run. The study recommended that Nigerian government should readjust spending priority to accommodate more capital expenditure and channeling of increase expenditure into some critical sectors of the economy such as health, power, education and general infrastructure are fundamental in maximizing public expenditure in Nigeria.

Aluthge et al. [8], investigated the impact of Nigerian public expenditure (disaggregated into capital and recurrent) on economic growth using time series data for the period 1970-2019. The study employed Autoregressive Distributed Lag (ARDL) model. To ensure robustness of results, the study accounted for structural breaks in the unit root test and the co-integration analysis. Findings from the study revealed that capital expenditure has positive and significant impact on economic growth both in the short run and long run, while recurrent expenditure does not have significant impact on economic growth both in the short run and long run. The study recommended that government should increase the share of the capital expenditure especially on meaningful projects that have direct bearing on the citizen’s welfare. Government should also improve the spending patterns of recurrent expenditure through careful reallocation of resources toward productive activities that would enhance human development in the country.

Ebipre and Eniekezimene [30], investigated the impact of public expenditure on economic growth in Nigeria between 1981 and 2016. Data were collected from CBN statistical bulletin. To use the Ordinary Least Square (OLS) technique, the data were tested for unit root using the Augmented Dickey-Fuller test. Thus, our findings showed that government capital expenditure was inversely related to Real gross domestic product both in short run and in the long run. Government recurrent expenditure was positively related to Real gross domestic product both in the long run and in the short run and there was inverse relationship between credit to the private sector and Real gross domestic product both in the short run and in the long run. The study thus recommended that the government should re-evaluate her capital expenditure component to ensure that funds are utilized on projects with socio-economic impact on the economy, eliminate leakages associated with misappropriation and embezzlement as well as ensure adequacy of funds on capital project in the right proportion in line with global best practices to stimulate long run impact of public expenditure on real growth of the Nigerian economy.

Onifade et al. [31], examined the impact of public expenditures on economic growth in Nigeria. Pesaran’s ARDL approach was applied to carry out the impact analysis using annual time-series data from 1981 to 2017. the study revealed that recurrent expenditures of government have a significant but negative impact on economic growth, while public capital expenditures have a significant positive impact on economic growth. Further results from the Granger Causality Test reveal that fiscal expansion of the government that is hinged on debt financing is strongly related to public expenditures and domestic investment causing real growth in the economy. The study recommended that the share of recurrent expenditure in total expenditures is kept within a reasonable proportion by blocking all leakages and wastages in public financing in the country. Furthermore, in order to adequately harness the expected returns of public capital spending in the economy, the Nigerian government has to be decisive and more transparent in its fight against financial corruption and diversion of public funds especially those that are allocated for the execution of capital projects across the country. The study also recommended that debt should not be taken by government for the main purpose of financing recurrent expenditure.

Onuoha and Okoye [9], explored the effects of aggregate public expenditure, recurrent public expenditure and capital public expenditure on economic growth and the effect of economic growth on aggregate public expenditure. The study used a time series data set from the Nigerian context for the period between 1981 and 2018 and analysing same with OLS regression model after a pre-estimation unit root test. The study found that whereas aggregate public expenditure positively affects economic growth, recurrent public expenditure and capital public expenditure have insignificant effects on economic growth. The study also found that economic growth positively affects government spending. The study therefore recommended that policy makers insist on improved government spending.

Bingilar and Oyadonghan [32], examined the impact of public expenditure on economic growth (proxied by gross domestic product) in Nigeria. Secondary time series panel data was collected for the period 1998 to 2017 from the Statistical Bulletin of the Central Bank of Nigeria (CBN). The study employed Ordinary Least Squares (OLS) technique using SPSS 23 version for the analysis of data. The results of the analysis showed that both inflation rate and interest rate have no significant effect on Gross Domestic Product on the economic growth in Nigeria. The study recommended that government should put in place measure to control inflation and also formulate and implement financial policies that enhance investment-friendly rate of interest and take into consideration those other factors which negatively affect investment in the country in order to maintain sustainable economic growth.

Odubuasi et al. [33], conducted a study on the effect of public expenditure on economic growth in Nigeria. The study evaluated the effect of public expenditure on economic growth in Nigeria using time series data of 15 years (2004-2018). The variables used for the study include recurrent expenditure, expenditure on highways, safety costs, education costs as the independent variables and real GDP as the dependent variable. Four objectives were formulated for the study and four hypotheses were also prepared in line with the objectives. Ex-post-facto research design was employed and the time series data was generated and analysed using regression analysis, Autoregressive Distributed Lagged (ARDL) testing technique and Error Correction Model-based, Granger Causality, unit root test and cointegration to examine the long run causal effect relationship that exist between public expenditure and economic growth in Nigeria. The study finds that public expenditure on highway and expenditure on safety has positive significant effect on economic growth in Nigeria at 5% and 1% levels respectively, government recurrent expenditure has positive yet statistically insignificant effect on economic growth, while public expenditure on education has negative and no significant effect on the economic growth in Nigeria. The study recommended among others that Government should increase its expenditure on capital project as this will provide the needed infrastructure that can enhance the private sector productivity thereby improve economic growth.

Bappahyaya et al.[4], examined the impact of public expenditure on economic growth in Nigeria using time series data from 1970–2017. Secondary data were sourced from Central Bank of Nigeria and World Bank. The study applied a modified version of endogenous growth model using Autoregressive distributed lag model. The adopted model was fitted with six variables- capital stock, labour force, capital expenditure, recurrent expenditure, inflation and trade openness. The study employed ADF-unit root test, Phillips-Perron test and Pairwise Granger causality test. All the variables used were found to be integrated at first difference except labour and inflation and a stable long run equilibrium relationship exist between the dependent and independent variables. Empirical findings revealed that two variables: capital and recurrent are statistically significant and hence these are the significant variables in explaining the impact of public expenditure on economic growth. The Granger causality test demonstrates a unidirectional causality from public expenditure to economic growth, in validation of Keynesian theory. In line with above, the study recommends among others that: government should intensify effort to ensure resources are properly managed and invested in productive sectors so as to foster economic growth. The paper recommended that Government consumption spending should be well coordinated at all arms of government, to prevent “crowding out” effect on government investment. Likewise, there should be high degree of transparency and accountability of government spending in various sectors of the economy in order to prevent the channeling of public funds into private account of government officials and workers.

Research Design

Research design is an activity plan based on the research objective and it guides the selection of source and types of information. Kothari defines research design as arrangement of conditions for collecting and analyzing data in a manner that it aims to combine relevance of the research purpose with economy in procedures. He adjoins that research design is not related to any particular method of collecting data or any particular type of data. Any research design can, in principle, use any type of data collection method and can use either quantitative or qualitative data.

The study employed descriptive and ex-post facto research designs which are subsets of quantitative research design. Quantitative research designs mostly emphasize objectivity in measuring and describing phenomena. The ex-post facto research design was adopted for this study based on positivist approach. An ex-post facto research design is used to describe the statistical effect of one variable on another. It is most appropriate for this study because it allows for estimating the impact of government or public expenditure on economic growth in Nigeria.

Model Specification

Multivariate Ordinary Least Square (OLS) Regression Model was specified to test the impact of public expenditure on GDP. To solve the problem of heteroscedasticity in the regression model, the variables were transformed to logarithm. Thus, the model for testing the hypotheses is specified as:

LGDPt = b0 + b1LADMINt + b2 LECONt + b3 LSOCt + b4 LTRANt + ut 

(1)

Where:

• LGDPt: Log of Gross Domestic product

• LADMINt: Log of Expenditure on Administration

• LECONt: Log of Expenditure on Economic Services

• LSOCt: Log of Expenditure on Social and Community Services

• LTRANt: Log of Expenditure on Transfers

• b0: Constant Coefficient.

• b1-b4: Coefficients of the Independent Variables

• ut: Error term

Data Presentation and Analyses

Data Presentation: The data presented in this section is data related to public expenditure and economic growth in Nigeria between 1981 and 2020. The data on public expenditure are presented in four folds: expenditure on administration (ADMIN), Expenditure On Economic Services (ECON), expenditure on social and community services (SOC) and expenditure on transfer (TRAN). The data on economic growth is measured using Gross Domestic Product (GDP).

The Table 1 presents a summary of the data collected for the variables of the study. The data is further presented in line graphs and pie charts.

In the period between 1989 and 2020, expenditure on transfers were highest, accounting for about 43 percent of total public expenditure. Expenditure on administration was the second highest expenditure, accounting for about 25 percent of total public expenditure in the period. Expenditure on economic services followed expenditure on administration, accounting for about 19 percent of total public expenditure in the period. The least public expenditure between 1981 and 2020 was expenditure incurred on social and community services, which accounted for about 13 percent of total public expenditure.

Table 1: Public Expenditure and GDP between 1981-2020

Data Analyses

Descriptive Analysis: The descriptive section provides the mean, maximum, minimum, standard deviation of the variables of the study. The data described in Table 2 describes the data on expenditure and economic growth between the period 1981 and 2020.

The results from the descriptive statistics indicate that the average value of expenditure on administration in the period under study amounted to N625.9billion, with a standard deviation of 758.5. The standard deviation indicates that the dispersion of data relating to administrative expenditure was extremely high in the period studied. The minimum and maximum expenditure on administration of N1.4billion and N2696.5billion indicate that the range of administrative expenditure was extremely high. Thus, the range of public expenditure on administration was very high in the period between 1981 and 2020.

The Table 2 also revealed that the average expenditure on economic services amounted to about N366.5 billion with a deviation of 402.0. The deviation in the data indicates that the expenditure on economic services during the period had a wide spread. The minimum and maximum values of N0.9billion and N1473.2billion indicate that the expenditure on economic services was extremely high, with a wide range.

Expenditure on social and community services revealed an average value of N365.5billion and standard deviation of 479.9. The minimum and maximum values of N0.6billion and N1658.3billion indicate that the expenditure on social and community services was extremely high, with a wide range. Expenditure on transfers revealed an average value of N752.1billion and standard deviation of 1050.6. The minimum and maximum values of N3.9billion and N4506billion indicate that the expenditure on transfer was extremely high, with a wide range.

Gross Domestic Product (GDP) revealed an average value of N34087.6billion and a widely dispersed standard deviation 45875.6. The minimum and maximum values of GDP of N139.3billion and N154252.4billion indicate that there has been a visible increase in the GDP data reported by CBN between 1981 and 2020.

Table 2: Descriptive Statistics

ADMIN denotes expenditure on administration, ECON denotes expenditure on economic services, SOC denotes expenditure on social and community services, TRAN denotes expenditure on transfer, GDP denotes gross domestic product.

Source: EViews 10

Test of Hypotheses

From Table 3, the R-Squared value of 0.91 indicates that the variables of public expenditure jointly explain about 91 percent of variation in economic growth in Nigeria. The F-statistic value of 56.25 indicates that the model is statistically fit, with a p-value of 0.000 less than 0.05 level of significance.

Test of Hypothesis One

• Ho: Expenditure on administration does not have a significant impact on gross domestic product (GDP) in Nigeria

• Hi: Expenditure on administration does have a significant impact on gross domestic product (GDP) in Nigeria

Table 3 revealed that, expenditure on administration has a positive impact of 0.121 on economic growth. Stated differently, expenditure on administration increases the gross domestic product of Nigeria by about 0.121. 

The t-statistics of 2.062 which exceed the tabulated t-value of 2.028 (@ 40-4, 0.05 level of significance) and p-value of 0.047 which is less than 0.05 level of significance indicates that the positive impact of expenditure on administration on GDP is statistically significant.

Thus, Ho1 is rejected. It is therefore upheld that expenditure on administration has a significant impact on gross domestic product (GDP) in Nigeria.

Test of Hypothesis Two

• Ho: Expenditure on economic services does not have a significant impact on gross domestic product (GDP) in Nigeria

• Hi: Expenditure on economic services does have a significant impact on gross domestic product (GDP) in Nigeria

Table 3 revealed that, expenditure on economic services has a negative impact of 0.008 on economic growth. Stated differently, expenditure on economic services decreases the gross domestic product of Nigeria by about 0.008. 

The absolute t-statistics of 0.249 which is less than the tabulated t-value of 2.028 (@ 40-4, 0.05 level of significance) and p-value of 0.805 which is greater than 0.05 level of significance indicates that the negative impact of expenditure on economic services on GDP is not statistically significant.

Thus, Ho2 is accepted. It is therefore upheld that expenditure on economic services does not have a significant impact on Gross Domestic Product (GDP) in Nigeria.

Test of Hypothesis Three

• Ho: Expenditure on social and community services does not have a significant impact on gross       domestic product (GDP) in Nigeria

• Hi: Expenditure on social and community services does have a significant impact on gross               domestic product (GDP) in Nigeria

Table 3 revealed that, expenditure on social and community services has a positive impact of 0.011 on economic growth. Stated differently, expenditure on social and community services increases the gross domestic product of Nigeria by about 0.011. 

The t-statistics of 0.2147 which is less than the tabulated t-value of 2.028 (@ 40-4, 0.05 level of significance) and p-value of 0.8313 which is greater than 0.05 level of significance indicates that the positive impact of expenditure on social and community services on GDP is not statistically significant.

Thus, Ho3 is accepted. It is therefore upheld that expenditure on social and community services does not have a significant impact on gross domestic product (GDP) in Nigeria.

Test of Hypothesis Four

• Ho: Expenditure on transfers does not have a significant impact on gross domestic product (GDP) in Nigeria

• Hi: Expenditure on transfers does have a significant impact on gross domestic product (GDP) in Nigeria

Table 3 revealed that, expenditure on transfer has a positive impact of 0.122 on economic growth. Stated differently, expenditure on transfer increases the gross domestic product of Nigeria by about 0.121. 

The t-statistics of 2.762 which exceed the tabulated t-value of 2.028 (@ 40-4, 0.05 level of significance) and p-value of 0.047 which is less than 0.05 level of significance indicates that the positive impact of expenditure on transfer on GDP is statistically significant.

Thus, Ho4 is rejected. It is therefore upheld that expenditure on transfers has a significant impact on Gross Domestic Product (GDP) in Nigeria.

Table 3: Estimation of the Impact of Public Expenditure On Gross Domestic Growth

• Expenditure on administration has significant impact on gross domestic product (GDP) in Nigeria. This is supported by the findings of Nwaolisa and Chinelo [1]

• Expenditure on economic services does not have significant impact on gross domestic product (GDP) in Nigeria. This agrees with the findings of Egbulonu and Ubechu [2]

• Expenditure on social and community services does not have significant impact on gross domestic product (GDP) in Nigeria. This is conformed in the study of Jeff-Anyeneh and Ibenta [3] and Anthony et al

• Expenditure on transfers has significant impact on gross domestic product (GDP) in Nigeria. This conforms with the findings of Bappahyaya et al. [4]

Findings

This study examined the effect of public expenditure on the growth of the Nigerian economy between 1891 to 2020. Public expenditure was studied from four dimensions: expenditure on administration, expenditure on economic services, expenditure on social and community services and expenditure on transfers. Economic growth was measured as gross domestic growth.

The study found that public expenditure has increased over the forty-year period of the study, with the highest expenditure being transfers, followed by administration. Expenditure on economic services and social and community services were the least expenditure incurred within the period. 

From the test of hypotheses, null hypothesis one and four were rejected, while null hypotheses two and three were accepted. The study summarizes that while expenditure on administration and transfers had significant impact on economic growth of Nigeria, expenditure on both economic services and social and community services had no significant impact on the economic growth of Nigeria.

The findings of the study demonstrate that public expenditure on administration and transfers have statistically significant effect on economic growth. Thus, the more money spent on administration and transfers will positively impact on economic growth in Nigeria. Public expenditure increase money in circulation and savings, which is mobilize by the financial institutions and lend to the firms which is used for production. The increase in the production level also increases the tax revenue collection by government and reduces social vices. The more public expenditure is incurred, the more the flow of money in the economy and the private sector increases its production capacity. Overall, the study concludes that public expenditure (excluding expenditure on economic and social expenditure) has significant positive impact on gross domestic product of Nigeria. Thus, economic growth is positively and significantly impacted by both administrative and transfer expenditure.

Recommendations

Based on the findings of the result, the following actions are recommended:

• Capital spending on economic services should be increased since in Nigeria

• Expenditure on Social and Community services should also be increased in order to boost the GDP. The current low level of investment on social and community services have resulted in the negative effect on GDP

• Since the analysis showed that spending on transfer have a positive impact on economic growth, transfer spending should be boosted in Nigeria

• Government should enhance it administrative expenditure to sustain the growth potentials of the economic through increasing it expenditure in running governmental activities

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