Government Spending and Economic Growth: A Revisit of the Nigerian Experience

Given the continued debate surrounding the effectiveness and efficiency of government spending in Nigeria, this study adopts a modified Autoregressive Distributed Lag Model in order to investigate the impact of federal government spending on economic growth between 1961 and 2010. The main findings are that government total expenditure and recurrent expenditure have insignificant effect on real GDP growth irrespective of the lag period. However, capital expenditure has significant positive effect in the second lagged period. Nevertheless, the long run multiplier of government spending whether total expenditure, capital expenditure or recurrent expenditure, is negative. This means that in the long run real GDP growth is slowed by the negative government expenditure multiplier. The policy implication of the findings is that the quality and efficiency of government spending remains an issue in Nigeria as theory posits that the multiplier effect of government spending should be positive even if it is, as usual, lower than private sector investment multiplier.