PUBLIC EXPENDITURE AND ECONOMIC GROWTH NEXUS IN NIGERIA: A VECTOR ERROR CORRECTION APPROACH

Abstract

This study investigates the relationship between aggregate government spending and economic growth in Nigeria,

with particular emphasis on the long-run relationships. Using annual time-series data from the Central Bank of

Nigeria (CBN) Statistical Bulletin spanning the period 1981 2023, the analysis employs techniques such as the unit

root test, the Johansen cointegration test, and the Vector Error Correction Model (VECM) to determine the existence

of a long-run equilibrium relationship among the variables. The findings reveal a significant negative long-run effect

of aggregate expenditure on economic growth, highlighting inefficiencies in public spending. The variance

decomposition shows a moderate contribution of aggregate expenditure to GDP growth over the ten-period forecast.

The findings challenged the Keynesian hypothesis in the long run and underscored the necessity for directing public

spending towards productive sectors to achieve sustainable economic growth, as put forth by Barrow. These results

align with existing empirical literature emphasising the importance of efficient and targeted government spending.

The study concludes by recommending enhancing public spending efficiency and focusing on productive

expenditures in critical sectors such as infrastructure, education, and healthcare to foster sustainable economic

growth.