EFFECTS OF GOVERNMENT FUND SPENDING ON ECONOMIC GROWTH IN NIGERIA

1.1 Introduction

Government Fund Spending is a crucial instrument that enables the government to control the economy of a nation. Economists have been well aware of the effects in promoting economic growth. The general view is that Government Fund Spending notably on social and economic infrastructure can be growth enhancing although the financing of such expenditure to provide essential infrastructural facilities including transport, electricity, telecommunication, water and sanitation, waste disposal, education and health can be growth retarding (Olukayode, 2009). The relationship between Government Fund Spending and economic growth has continues to generate sense or controversies among scholars in economic literature (Inuwa, 2012).

As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitation of the study and Definition of terms.

1.2 Background of Study

Government Fund Spending has remained one of the most important macroeconomic management tools for the controlling of the level of demand and money supply in an economy. If well managed, it can put an economy on the path of sustainable growth and development. Government in any society performs two major/main functions namely: protection and provision of basic infrastructure/amenities (Abdullah, 2010). The nexus between Government Fund Spending and economic growth has continued to generate controversies among scholars. Government performs two major functions in an economy namely protection (defense or security) and provision of certain public goods (Robinson, etal, 2014). Protection function consists of the creation of rule of law and enforcement of property rights. The protection function helps in curtailing the occurrence of crimes, protects lives and properties and protects the nation in entirety from external aggression. Furthermore, it is also the responsibility of the government to ensure the adequate provision of public goods such as roads, water, electricity, health, education, housing etc, to improve the material wellbeing of the populace.

According to Inuwa (2012), the nature of the impact of Government Fund Spending on economic growth is in conclusion, and from the view point of the student researcher is still not incontrovertible. As a matter of fact, while some author or researchers believed that the impact of Government Fund Spending on economic growth is negative or non-significant (Tuban, 2010), others believed that the impact is positive and significant (Alexiou, 2009). The structure of Nigeria Government Fund Spending can bawdily be categorized into capital and recurrent expenditure (Muritala 2011).

The recurrent expenditure is basically government expenses on administration such as wages, salaries, interest on loans, maintenance cost, etc. However, the expenses on capital project like roads, airports, education, telecommunication, electricity, generator, etc are generally referred to as capital expenditure (Muritala, 2011).

Some scholars such as Abdullah (2010); Okoro (2013) and Robinson, etal, (2014) to mention a few, argued that increase in Government Fund Spending on socioeconomic and physical infrastructures encourages economic growth. For example, Government Fund Spending on health and education has the tendency to raise the productivity of labour and further stimulate the level of national output. Similarly, Government Fund Spending on physical infrastructures such as roads, power, communication, water etc, reduces the cost of production by the manufacturing sector, encourages private sector investment, enhances foreign investment, raises the performance and profitability of firms and further propels economic growth. Supporting these views, scholars such as Ranjan (2008) and Corray (2009) adduced that that the enlargement of Government Fund Spending contributes positively to economic growth.

In Nigeria, Government Fund Spending has continued to rise due to large proceeds from the production and sales of crude oil over years and the demand for public goods have also been on the upward trend. Available statistics showed that total Government Fund Spending (capital and recurrent) have continued to rise in the last three decades. For instance, total recurrent expenditure rose from N461, 600 million to N1, 589, 270 million between 2000 and 2013. In the same manner, the composition of government recurrent expenditure showed that expenditure on defense, internal security, education, health, construction, transportation and communication increased as well between 2000 and 2013. The capital expenditure stood at N239, 450 million and N860, 230 million in 2000 and 2013. Furthermore, the various components of capital expenditure (defense, health, education, transportation and communication) have been on the increased as well during those periods (CBN, 2014).

The relationship between Government Fund Spending and economic growth is important for all developing economies like Nigeria, most of which have experienced increasing level of Government Fund Spending and have achieved low level of economic development overtime. Since independence, the revenues accruing to Nigeria has been on the increase annually. Also public spending incurred by the government has been on the upward trend over years, despite this, Nigeria is still bedeviled with poor level of productivity in relation to demand for them, dilapidated state of existing infrastructural facilities, low level of technology, high rate of unemployment, dearth of functional and effective infrastructures, epileptic power supply, low per capita income, low savings and investment and many more.

Ironically, the effect of Government Fund Spending in Nigeria in relation to the economic growth is still a puzzle and an unresolved issue. Indeed theoretically, it is an unresolved issue. Although the theoretical positions on the subject are quite diverse, the conventional wisdom is that or spending is a source of economic instability or stagnation. Empirical research does not conclusive support the conventional wisdom, a few studies report position and significant negative relationship between Government Fund Spending and economic growth while others find significantly negative or no relation between an increase in Government Fund Spending and growth in real output.

Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Impact of Government Fund Spending on Economic Growth.

1.3 Statement of Problems

Investigation revealed that the rising Government Fund Spending has not translated into meaningful improvement in the standard of living of the people as Nigeria ranks among the poorest countries in the world. In addition, majority of Nigerians have continued to live in abject poverty, with more than 50% living on less than $2 per day. Coupled with these, dilapidated infrastructures especially roads and power supply has led to the collapse of some local industries and migration of some multinational firms, which has escalated the unemployment rate in the country. Moreover, macroeconomic indicators such as inflation rate, interest rate, exchange rate, national savings, per-capital income reveal that Nigeria has not fared well in the last couple of years.

In the last decade Nigeria economy has metamorphosed from the level of Billion Naira to Trillion Naira on the expenditure side of the budget. The effects of this expenditure are largely unnoticeable on the citizenry (Muritola 2011).

1.4 Aim and Objectives of Study

The aim of the study is to investigate the Effects of Government Fund Spending on Economic Growth in Nigeria. In achieving this aim, the following specific objectives were laid out as follows:

1. To examine the impact of government capital expenditure on economic growth in the area under study;
2. To evaluate the effect of Highways cost on economic growth of Nigeria;
3. To determine the effect of safety cost on economic growth of Nigeria; and
4. To investigate the effect of government recurrent expenditure on economic growth in the area under review.

1.5 Research Questions

The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:

• Are there implication of Highways cost on economic growth of Nigeria?
• What is the effect of safety cost on economic growth of Nigeria?
• What is the impact of government capital expenditure on economic growth in Nigeria?
• What is the effect of government recurrent expenditure on economic growth in Nigeria?

1.6 Research Hypothesis

In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.

Hypothesis One

• H0: Government capital and recurrent expenditure has not contributed significantly to economic growth in Nigeria
• H1: Government capital and recurrent expenditure has contributed significantly to economic growth in Nigeria

Hypothesis Two

• H0: Expenditure on Safety program has no significant effect on the economic growth of Nigeria
• H1: Expenditure on Safety program has significant effect on the economic growth of Nigeria

Hypothesis Three

• H0: There is no significant relationship between government recurrent revenue and economic growth of Nigeria.
• H1: There is significant relationship between government recurrent revenue and economic growth of Nigeria.

1.7 Significance of Study

The result is expected to be useful to government in attend to issues accordingly when appropriating expenditures. Local and international investors will find this work useful as it provides evidence of Government commitment toward building enabling business friendly environment in Nigeria.

International Financial Institution like the international monetary fund (IMF) and World Bank will find the empirical evidence from this study useful especially in making or taking decision to lend or not to lend to Nigeria government after evaluating the purpose of the expenditure.

The study is structured in such a way that next section is where all the related literature are reviewed, section three contains the methodology of the study, the next section is discussed analysis and results alongside conclusion and recommendations.

This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.

1.8 Scope of Study

The scope of the research is focused on the Effects of Government Fund Spending on Economic Growth in Nigeria.

1.9 Limitations of the Study

During the course of this study, many things militated against its completion, some of which are:

1. Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
2. Research material: availability of research material is a major setback to the scope of the study.
3. Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
4. Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

1.10 Methodology

The study empirically assesses the Effects of Government Fund Spending on Economic Growth in Nigeria. To this end, the instrument to be used for the collection of data for the purpose of this research is questionnaire. Data related to this research work will be analyzed using percentage and simple statement as referred to the information collected from respondents through the research questionnaire.

The statistical analysis adopted was correlation. All computations requiring the use of data analysis technique were accessed by a computer statistical software package called SPSS (Statistical Package for Social Sciences) to estimate the impact of Government Fund Spending (capital and recurrent) on economic growth in Nigeria. The choice of this technique is informed by the desirable properties of the correlation such as unbiasedness, minimum variance, consistency, sufficiency and linearity.

1.11 Definition of Terms

Capital Expenditure

It is a component of government expenditure incurred on capital projects such as roads, railways, telecommunications, electricity and the like. This kind of expenditure involves huge amount of money and is not incurred on regular basis.

Recurrent Expenditure

It is a component of government expenditure incurred on regular basis such as wages and salaries, interest on loans, general administration and maintenance.

Government Expenditure

This refers also to public expenditure. It is the total expenditure incurred by the government for its maintenance of itself as an institution and to ensure the provision of public goods to citizenry.

Economic Growth

This is the quantitative increase in the volume of a country’s level of productivity or GDP between two consecutive quarters.