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This research analyzes the implications of government spending on the growth of Nigeria economy over the periodin the Nigeria economy.

Governmentexpenditure in an economy with regards to spending in the development process, government is presumed to be a veritable tool for economic growth and development leaning on the Keynesian doctrine. This study, therefore, analyzed the behavior of government expenditure in Nigeria and formulated an econometric model, which was found proof that government expenditure in Nigeria responds political instability than economic growth.












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Dedication – – – – – –  – – – — – – – – – – – – – – – – – – – – – – – – – – – – –

Acknowledgement – – – – – –  – – – – – – – – – – – – – – – – – – – — – – – – – – – –

Abstract – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –

Table of Content – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –


1.1 Background of Study – – – – –

1.2 Statement of the Problem – – – – – –

1.3 Research Question – – – – – –

1.4 Objective of Study – – – – – –

1.5 Significance of Study – – – – –

1.6 Statement of research Hypothesis – – – – –




 2.1Economics of Government Expenditure- – – –

2.2 Theoretical Reviews- – – – –

2.3 Empirical Review



3.0 Introductions – – – –

3.1 Model Specification – – – –

3.1.1 F-Statistic Test- – – –

  • Student-t Test – – –

3.2.2Adjusted R2 – – –

3.3 Durbin –Watson Test – – –




4.1 introduction – – – –

4.2 presentation of data – – – –

4.3 Trend analysis – – – –

4.4 Test for unit root- – – –

4.5 DIAGNOSTIC test – – – –


5.1 Summary of findings – – – –

5.2 Conclusions – – – –

5.3 policy Recommendations – – – –

Bibliography Appendix









Government expenditure no doubt is an important instrument for controlling the economy of a nation over time. Economists have documented the effects of government expenditure in promoting economic growth (Udude, 2015). Thus the general view is that government expenditure notably on social and economic infrastructure can be growth enhancing although the financing of such expenditure to provide essential infrastructure facilities including transport, electricity, telecommunication, water and sanitation, waste disposal, education and health can be growth retarding (Anderson, W. Wallace, M.S. and Warner J.T 1986).The recurrent expenditure is basically government expenses on administration such as wages, salaries, interest on loans, maintenance cost etc. Also the expenses on capital project like roads, airports, education, telecommunication, electricity generator etc. are general referred to as capital expenditure (Muritala, 2011).However, the effect of government spending in Nigeria in relation to the economic growth is still a puzzle and an unresolved issue.

Although the theoretical position on the effects of government expenditure on output gap are quite diverse, the conventional wisdom is that government spending is a source of economic instability or stagnation (Gerson, 1998).  When the government buys the services of factors of production and uses them to produce goods and services in the public sector of the economy, the factors are unavailable to produce private-sector output in other words government spending in economy will bring low rate of unemployment and less poverty in the economy. With expanding State activities, it is becoming increasingly difficult to judge what portion of the public expenditure can be ascribed to the maintenance of the government itself and what portion to the benefit of the society and the economy (Udude, 2015).

There is an increasing need for classification of public expenditure to enable the gauging of the economic effects and proper formulation of policies. Economists classify government expenditures into three main types (Gerson, 1998): (i) Government purchases of goods and services for current use are classed as government consumption; (ii) Government purchases of goods and services intended to create future benefits, such as infrastructure investment or research spending are classed as government investment; and (iii) payments for debt services are classified as transfer payments.

One thing that concerns economists and policymakers about these ups and downs (commonly called the business cycle) is how close current output is to an economy’s long-term potential output.Potential output is referred to as the production capacity of the economy. The GDP gap is measured as the actual GDP minus the potential GDP divided by the potential GDP Just as GDP can rise or fall, the output gap can go in two directions: positive and negative and neither is ideal. Positive output gap occurs when actual output is more than full-capacity output. This happens when demand is very high and, to meet that demand, factories and workers operate far above their most efficient capacity. A negative output occurs when actual output is less than what an economy could produce at full capacity. A negative gap means that there is spare capacity, or slack, in the economy due to weak demand.­A persistent, large output gap has severe consequences for, among other things, a country’s, long-run economic potential, and a country’s public finances.The longer the output gap, the longer a sizable output gap persists, the more damage will be inflicted on an economy’s long-term potential through what economists term “hysteresis effects.” In essence, workers and capital remaining idle for long stretches due to an economyoperating below its capacity can cause long-lasting damage to workers and the broader economy (Lipsey, 2007).









Increase in the output gap serve as an indication to the occurrence of increased unemployment, poverty, non –inclusiveness of growth process and inequality (Udude, 2015). Therefore, managing the output gap becomes a matter of cautious policy making for the government.    Empirically, while a positive and significant relationship between government spending and output gap exist (Anyafo, 1996) there are also references to a negative relationship between government expenditure and output gap Anyafo (1996), following these mixing findings, the research will therefore try to elicit the casual effects of government expenditure on Nigeria’s output gap.


  1. 1. What is the relationship between government expenditure and the output gap in Nigeria?


The broad objectives of the study is to evaluate the causal relationship between government expenditure and output gap in Nigeria which includes:

1 To determine the relationship between governmentsexpenditure and the output gap in Nigeria.

2 To determine the nature of output gap in Nigeria.


The relevance of the study cannot be over emphasized going by dwindling government finance and pressure from macroeconomic problems coming from the gap. The Nigeria government will find the outcome of this research to be beneficial because the more government spend on infrasture and output gap in the economy,this is because they saw government intervention in the economy as a serious problem which can suppress growth and therefore lead to less output.



H0: There is no significant relationship between government expenditure and output gap in Nigeria.

H1: There is significant relationship between government expenditure and output gap in Nigeria.


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