CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Public spending represents the annual expenditure by the federal

government to achieve some macro-economic objectives which may include

poverty reduction increase in national productivity and macro-economic

stability in the system.

Since the late 1980’s an increase in public spending has become a

major instrument in Nigeria. This was attributed to the following reasons as the

major causes of an increase in government expenditure in Nigeria. First is the

dominant role of public sector in major economic activities in Nigeria. This

could be attributed to several factors among them are oil boom of the early

1970’s the need for reconstruction of war affected areas after Nigerian civil war

in 1970 the industrialization strategy adopted at that time by the federal

government (import substitution strategy) and the need to raise gross domestic

product (GDP).

On the other hand the collapse of oil prices in and general

mismanagement of the economy in 1980’s brought the issue of poverty

eradication in Nigeria. Furthermore the recent flood disaster in Nigeria has re-

awakened the fight against poverty in Nigeria. In the mid 1980s it was observed

that the private sectors were declining in economic activities as measured by

aggregate output industrial production non oil exports etc. were all showing

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decreasing signs. Above all there widespread evidence of massive poverty in

the economy despite of the growing public expenditure and fiscal deficit in the

economy (library of congress country studies 1980’s).

In 1986 all major socio-economic indicators were showing downwards

which brought high rate of unemployment and decreased in purchasing power.

Poverty was spending among Nigerians especially the low income earners and

economic growth was downward sloping.

Poverty in Nigeria did not become an issue of great concern until after

the oil boom when the international oil price crashed and there was an

international economic slump. The continuous downward trend in the oil prices

in the international market increased the poverty level in Nigeria. The over-

dependency on oil revenue and inadequate efforts to mobilize funds from non oil

sources led to a serious decline in government revenue. External reserve

deteriorated and cause huge accumulated trade arrears and thereby limiting

government effort in provision of basic amenities and social facilities.

Thus the poverty level in Nigeria continues to be on the increased over the

past few decades. The 1991 world development report (WDR) showed that

Nigeria the most populous country in Africa has a significant number of her

population categorized as poor people.

In recognition of the adverse effect of poverty in Nigeria federal

government set up Structural Adjustment Program (SAP) to reduce over

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dependency on oil and to provide food to all Nigerians. This had been followed

by the introduction of other policies such as national FADAMA programs.

Furthermore the federal government made poverty reduction the core objectives

of its annual budget and also initiated various policies measures aimed at

promoting people’s welfare and reducing poverty in the economy.

Poverty become an issue of global dimension with nations striving either

to reduce or outright poverty in there economy. The complexity of the

phenomenon and its impacts on national economics has attracted the attention of

international organizations and agencies with government in different nations

embarking on policies aimed at reducing poverty. Consequently Nigerian fiscal

policies especially as regard expenses in the areas that have positive impact on

the well being of the poor have progressively being on the increase over the

years. Recently the Imo State government took a bold step towards poverty

reduction by introducing free education to all the indigenes of the state up to the

tertiary level.

Finally the extent to which government spending have impacted on the

well being of the people prompted this study.

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1.2 STATEMENT OF THE PROBLEM

In Nigeria poverty has been on the increase which can be attributed to

inequality existing in the economy such as corruption macro-economic

instability and inconsistency in government policies. In an ordinary framework

poverty is concern with absolute modulate or relatively standard of living or

inability to attain a minimal standard of living. Poverty is found to be at the

worst in the rural areas. Which is characterized by malnutrition lack of standard

education low life expectancy and sub-standard housing? In attempt to alleviate

these problems three actors are observed in the literature as being involved in

any giving country. Namely; the three ties of government (federal state and

local government) international organizations and nongovernmental

organizations (NGO’s).

1.3 RESEARCH QUESTION

i To what extent has public expenditure affected the levels of poverty and

economic growth in Nigeria?

ii What is the direction of relationship between public expenditure and

poverty reduction in Nigeria?

1.4 OBJECTIVE OF THE STUDY

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In the context of this study the following objectives will be achieved.

i To evaluate the impact of public expenditure on poverty reduction in

Nigeria

ii To determine the direction of relationship between public expenditure and

poverty alleviation in Nigeria.

1.5 RESEARCH HYPOTHENSIS

Ho: Public expenditure has no impact poverty reduction in Nigeria

Ho: There is no direction of relationship between public expenditure and

poverty reduction in Nigeria.

1.7 SIGNIFICANT OF THE STUDY

A research to investigate the impact and relationship between public

expenditure and poverty reduction in Nigeria occupies an important detail which

cannot be over-emphasized. The parastatas responsible for poverty reduction in

Nigeria will find this study useful as it will unveil the current poverty profile and

better strategies to alleviate them.

In the other hand the federal government will benefit from this because it

will help them to channel public fund on the economy judiciously.

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Finally the rural dwellers whose represent gross poverty in Nigeria

remains the most beneficiaries of this study because it will help government to

make policies that will promote their standard of living.

1.7 SCOPE AND LIMITATIONS OF THE STUDY

This study is limited to analyze the impact of public expenditure and

poverty reduction in Nigeria from 1980-2011. The choice of this period based

on the economic history. The 1980s witnessed a radical change in Nigerian

economy which led to the introduction of structural adjustment program (SAP).

It also the period when the standard of living index fell was resulting in further

rise in the incidence of poverty.

Furthermore looking at how government expenditure helps in reducing of

poverty not all sectors of the economy were used. The sectors are those that

have direct impact on people’s welfare which include agriculture and water

resources health housing and environment education transportation and

communication.

This research work suffered some limitations because research in

economics has never been easy with the researchers. In most cases the

researcher is threaten to a number of factors such as; the mobility of involve in

this research was stressful; the time required to carry out this research was

highly limited as the researcher required time for other academic activities.

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Finally despite of the above problems encounted by the special grace of

God the objective of this study will be achieved.

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