Public expenditure profile and Economic dynamism in Nigeria: A quasi general equilibrium analysis

Abstract

Government expenditure plays a strategically important role in economic growth and development of nations. Its contributions includes boosting economic growth, employment generation, increase in income, higher standard of living, reduction in income inequalities, increasing private initiative and boosting of regional balance. This paper studies the effects of government expenditure on inflation, unemployment, consumption and investment by analyzing four different models. The paper asks the question of what happens after government expenditure? Is the effect of government expenditure on selected variables of interest positive or negative? What shall government do to ensure that its own expenditure profile is development oriented not otherwise? The methods of analysis used for the study are ARDL Error Correction Model and Granger causality test using data for the period 1981 to 2020. Diagnostic tests that include lag order selection test and ADF stationarity test were conducted. The long run results show that both recurrent and capital expenditures have negative effects on inflation but positive effects on investment. The results also show that capital expenditure contribute to reducing unemployment. The long run result also show negative effects of both types of expenditures on consumption. But the results of the short run analysis show that both types of expenditures have positive effects on consumption. They also have positive effects on inflation in the short run. Recurrent expenditure reduces unemployment in the short run. But, government expenditure did not influence investment in the short run.