Response of Economic Growth to the Stimuli of Government Expenditure: Evidence from Nigeria

Abstract

Impulse responses test found that economic growth proxied by growth responded slightly to the shocks of public expenditure in both positive and negative direction. The error correction mechanism revealed that economic growth proxied by Gross Domestic Product reinforces itself, that recurrent expenditure exerts positive and significant impact on economic growth within the period of the study, while capital expenditure impacts insignificantly at on economic growth at the same level with recurrent expenditure. The implication of this is that capital expenditure does not impact on economic growth the same year fund is expended. The pair wise granger causality test informed that recurrent expenditure has unidirectional effect with gross domestic product, whereas capital expenditure exhibits bidirectional effect with gross domestic product. The data extracted from the central bank of Nigeria statistical bulletin showed absence of multicollinearity, serial correlation within the variables. The same variables are all integrated at order one, while the model is homoscedastic. Therefore, suggested that capital projects should as much as possible be completed within the budgeted period in order to exert significant impact on the economy.