CHAPTER ONE

1.1 BACKGROUND OF THE STUDY

In all most all economics today government intervention in

undertaking fundamental roles of allocation stabilization

distribution and regulation especially where or when market proves

inefficient or its outcome is socially unacceptable. Government also

intervenes particularly in developing economics to achieve

macroeconomics objective such as economic growth and

development full employment price stability and poverty

reduction.(AESS PUBLICATION 2011).

Public finance is to provide information to all arms of

government in other to provide use full data as done for the develop

nations that transferred public finance technology to developing

nation. Public finance is used for allocation stabilization and

distribution (Musgrave and Musgrave 1989).

Public finance is the study of the principle underlying the

spending and raising of funds by public authorities (shirras 1969).

It is the field of economics that studies government activities and

alternative means of financing expenditure (hymann 1993))

It is a fact that no society though out history has ever attained

a high level of economic affluence without a government. Where

government do not exist anarchy reigned and little wealth was

accumulated by productive economy activity. After government took

hold the rule of law and the establishment of private property right

often contributed and it has similarly impacted on their societies as

well.

Economic growth represents the expansion of a country GDP

or outputs. Growth means an increase in economic activities.

Todaro (1995) Citing Kuznets defined a country economic

growth as a long term rise in capacity to supply increasing diverse

economic goods to is population this growth capacity based on

advancing technology and the institutional and ideological

adjustment that is demand. The board objective of this project is

the role of government expenditure in economic growth.

Government is necessary through by no means sufficient

condition for prosperity it is also a facts however that where

government have monopolized the allocation of resources and other

economic decisions societies have been successful in attaining

relatively high level of economic affluence. Economic progress is

limited both when it is at or near 100%. The experience of the old

Soviet Union is revealing as well the comparison of east and West

Germany during the cold war era or of north and South Korea

today.

In the Nigeria context the public sectors consist of the federal

government state government and local government. The second

national development just as it considered public enterprise as

crucial to growth and self reliance due to capital scarcity structural

defects in the private sector. Third nation’s development plan(1975-

1980) advocated some shift in resources allocation in favors of rural

areas which were said to have benefited little from the economic

growth of the 1970’s.

Thus smaller farmer and the rural population were expected to

benefit from public expenditure.

During the first nation rolling plan (1989-1991) government

aimed at effort to combat inflation hence large budgetary deficits

were to be made more avoided. Government expenditures were to be

made more cost effective and kept at level that were consistent with

the nations resources realistic growth target and general economic

stability

The major instruments by which the government can ensure

an effective growth in economic activities are;

i. Expenditure that induce the firm or workers to produce

certain goods and services.

ii. Taxes that reduce private consumption or investment and

thereby free resource for public expenditure.

iii. Regulation and controls that direct people performance or

desist for economic growth to attain economic growth.

These objectives are summarized as;

a. Provision of infrastructural facilities such as good roads light

water transport and communication facilities etc in both

urban and rural area with the view to adequate support to the

productive sector and enhancing private sector participation

on the various sectors of the economy.

b. Streamlining public expenditure to give priority to the

completion of the initial ongoing viable project.

Direct expenditure is that incurred in an establishment of

economically viable commercial enterprises such as iron and steel

complex oil and gas refineries etc.

Government expenditure in addition to raising the level of

economic growth also influences the pattern of production and the

component of output.

Generally government expenditure is classified into two which

are by current expenditure which involves all expenditure by

government for maintenance of existing or new institutions and

services they are salaries wages of public offers and fringe benefits

and expenses for servicing activities which involves administration

defense and other social services like education health and pension

schemes.

The other one is capital expenditure this are the cost of

bringing into existence new institutions services and project. It is

simply all government expenses on building road factories schools

and equipment requirement for providing social and economic

services.

1.2 STATEMENT OF PROBLEM

The size of government expenditure and its effects on long-run

economic growth and vice versa has been as issued of sustained

interest for decades.

According to Dunnet (1990) economic growth is an increase in

real per capita gross national product (GNP).

Economic growth is the steady process by which the

productivity capacity of an economy is increased over time to bring

about rising level of national output and income.

Growth is an engine of development there can be no

development without growth hence and economic growth is

desirable since it associated an increase in welfare.

At the new dawn of millennium Africa in general and Nigeria in

particular still face monumental development like low level of

income characterized by low per capita income inequality poor

health and inadequate education. All this are consequences of

poverty Nigeria present a paradox the country is rich but the people

are poor. Per capital income today in Nigeria is around the same

level as 1970.

Meanwhile between1970-2000 over 200million dollars has

been earned from the exploitation of countries resources.

Nigeria is rich in land oil people and natural gas resources

yet Nigeria has been bedeviled with debts problem.

Nigeria has been classified by the World Bank as a low

developing country. She is characterized by the wide spread

poverty not less than 60% of Nigerian population are below poverty

line according to the united national development report (UNDP)

1998.

The better reality of the Nigerian situation is not yet that the

poverty line is getting worse by the day but more than fourteen of

Nigerians live in condition of extreme poverty of less than ₦320 per

month which barely provide for a quarter of the nutritional

requirement of health living.

The sluggish growth of the Nigerian economy despite the

increase in government expenditure has been rather surprising.

Since independent according to Kweka P.J (1969 1986

1999) government consumption and investment expenditure in

Nigeria has been on the increase.

On the other hand the GDP growth rate of Nigerian economy

has not been regular; in fact it has been less static. In order to

successfully map out a strategy for accelerating Nigeria’s growth

rate in the year ahead it is necessary to full understand the sources

of economic growth in Nigeria during the past four decades. One

will notice that government expenditure in Nigeria has been on the

increase.

1.3 OBJECTIVE OF THE STUDY

1. To find out if government expenditure significantly affects

economic growth in Nigeria.

2. To find the causality direction of the relationship between

government expenditure and economic growth in Nigeria.

1.4 STATEMENT OF HYPOTHESIS

The following null hypothesis will be tested at 5% level of

significance.

1. H

0

= government capital expenditure has no impact on the

Nigerian economy.

2. H

0

= government recurrent expenditure has no significant

impact on the Nigerian economy.

3. H

0

=there is no direction of causality between gross domestic

product and government expenditure.

1.5 SIGNIFICANCE OF THE STUDY

This study has much significance on household stakeholders

and no government as a whole because economic growth is an

engine of the economy.

i. This research will serve as a research as a references on the

other researcher who may carryout research work in this field

of study.

ii. This research would help Nigerian government and her policy

makers to restore fiscal discipline in Nigeria.

iii. This study would help in the debt management in Nigeria.

1.6 SCOPE AND LIMITATION OF THE STUDY

In any research study of this nature there is normally the

enthusiasm to touch as many areas as possible which are

connected to the various needs of such study.

However due to the nature and scope of the work such a wild

scope is out of the question since a work of this nature can hardly

achieve a feat.

This study will examine mainly the Impact of government

expenditure on economic growth of Nigeria covering the period 1980

to 2011.