Public Expenditure and Economic Growth in Nigeria: An Application of Co-Integration and Error Correction Modeling

This study investigates the relationship    between public expenditure and economic growth in Nigeria. The long run equilibrium relationship and the direction of causality were estimated using co-integration and granger causality models respectively. The result of the co-integration analysis indicates that there is no co-integrating relationship between public expenditure and real GDP in Nigeria. Similarly, the result of the Granger causality tests reveals that neither public expenditure Granger causes real GDP, nor real GDP Granger cause public expenditure. The study concludes that there is no long run relationship between government expenditure and economic growth in Nigeria and that government expenditure and economic growth are both independent, implying that causality does not run from government expenditure to economic growth or vice versa. The study attributes this finding to some leakages in governments’ administration and execution of public expenditure. Based on this finding, the study recommends that government should demonstrate strong commitment in the implementation of public expenditure. This could be achieved through a prudent, transparent and accountable public expenditure.