EFFECT OF GOVERNMENT EXPENDITURE ON THE MACROECONOMIC PERFORMANCE OF NIGERIA

Abstract

This study looked at the impact of government spending on Nigeria's macroeconomic performance from 1981 to 2021. The study used three different models with three different macroeconomic variables as the dependent variables: real GDP, unemployment and inflation. The data was subjected to unit root econometric analysis, the Johansen cointegration test, and the error correction model. The findings revealed that government recurrent expenditure increased Nigeria's real GDP and unemployment rate significantly, while the variable's positive effect on inflation rate was minimal, that is, not significant. Furthermore, though the effect was not statistically significant, government capital expenditure was found to have a positive effect on real GDP. Capital expenditure reduced unemployment and inflation rates during the study period. In the models, the intervening effect of government borrowing was predominantly negative, whereas government borrowing significantly increased real GDP. From the research, the positive aspect of capital expenditure by government is yet to be consistent in significantly improving macroeconomic variables. Only recurrent expenditure has had a significant impact on the macro economy, but the significance was negative at times. It was suggested that the prudent budgetary spending, increase capital spending to build productive capacity, and channel both capital and recurrent spending into job creation and human capacity building ventures should be engaged by government.