TABLE OF CONTENT
Title Page i
Certification ii
Approval Page iii
Dedication Page iv
Acknowledgement v
Abstract ix
CHAPTER ONE
INTRODUCTION
- Background to the Study 1
- Statement of the Research Problem 5
- Objective of the Study 5
- Research Questions 6
- Research Hypotheses 6
- Significance of the Study 7
- Scope and Limitation of the Study 8
- Organisation of the Study 9
CHAPTER TWO
LITERATURE REVIEW
2.1 Review of Theoretical Literature 10
2.2 Theoretical Literature Review 10
2.3 Empirical Literature Review 27
2.4 Summary of Literature Reviewed 35
2.5 Justification of Study 35
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Theoretical Framework 37
3.2 Model Specification 38
3.3 Explanation of Variables 40
3.4 Estimation technique procedures 41
3.5 Evaluation of estimates 45
3.6 Test of Research Hypotheses 51
3.7 Nature and Sources of Data 51
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND DISCUSSION OF FINDINGS
4.1 Data Presentation 53
4.2 Data Analysis 59
4.3 Evaluation of Research Hypotheses 69
4.4 Discussion of Findings 70
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION, AND RECOMMENDATIONS
5.1 Summary of Findings 74
5.2 Conclusion 75
5.3 Recommendations 76
References 78
Appendix I 81
Appendix II 83
ABSTRACT
The study examined the impact of public spending on poverty reduction in Nigeria covering the period 1981 – 2014. The variables used for the analysis were poverty rate as the dependent variable and public capital spending, public recurrent spending, gross domestic product per capita and domestic investment as the independent variables. The time series data used for this study were obtained from CBN statistical bulletin and National Bureau of Statistics. The data were analyzed using ADF test, Johansen cointegration test, ordinary least square method (OLS). The finding of the study revealed that public capital spending has a direct (positive) and nonsignificant relationship with poverty reduction, while public recurrent spending has an indirect (negative) and nonsignificant relationship with poverty reduction in Nigeria within 1981 – 2014. Other variables such as gross domestic product per capita has an indirect and significant relationship with poverty reduction, while domestic investment has a direct and significant relationship with poverty reduction in Nigeria within the period under review. The study recommends that Nigerian government should ensure that its capital expenditure is properly managed in a manner that it will reduce the poverty rate in the country, endeavour to pay the workers their salaries on time in order to avoid increase in poverty rate and should adopt policy mix, since only fiscal policy cannot reduce the poverty rate in Nigeria.
CHAPTER ONE
INTRODUCTION
- Background of the Study
Poverty is one of the most difficult problems that policy makers face. Poor families are more likely than the overall population to experience homelessness, drug dependency, domestic violence, health problems, teenage pregnancy, illiteracy, unemployment and low educational attainment. For these reasons, Government formulates policies to reduce poverty in the society and one of the ways or means through which that can be achieved is by public spending.
Public spending includes all government consumption, investments and transfer payments. In national income accounting, government acquisition of goods and services for current use is classed as government consumption expenditure while government acquisition of goods and services intended to create future benefits, such as infrastructure, investment or research spending is classed as government capital formation. These two types of government spending together constitute one of the major components of gross domestic product (GDP).
In other words public spending represents the annual expenditure by the Federal government to achieve some macro-economic objectives which may include poverty reduction, increase in national productivity and macro-economic stability.
Since the late 1980’s, an increase in public spending has become a major instrument in Nigeria. The increase in public spending was necessitated by the following reasons:
Firstly, the dominant role of public sector in major economic activities in Nigeria as a result of the oil boom of the early 1970’s. Secondly the need for reconstruction of war affected areas after Nigerian civil war in 1970, and thirdly, the industrialization strategy adopted at that time by the federal government (import substitution strategy) and the need to raise gross domestic product (GDP).
On the other hand, the collapse of oil prices and general mismanagement of the economy in 1980’s brought the issue of poverty eradication in Nigeria. Furthermore, the recent flood disaster in Nigeria has re-awakened the fight against poverty in Nigeria. In the mid-1980s, it was observed that the private sectors were declining in economic activities as measured by aggregate output, industrial production, non-oil exports etc.
Above all, there is widespread evidence of massive poverty in the country in spite of the growing public expenditure and fiscal deficit in the economy (library of congress country studies 1980’s).
In 1986, all major socio-economic indicators were showing downwards trend and this brought about high rate of unemployment and decreased purchasing power: Poverty was rearing its ugly head in Nigeria.
Poverty in Nigeria did not become an issue of great concern until after the oil boom when the international oil price crashed and there was an international economic slump. The continuous downward trend in the oil prices in the international market increased the poverty level in Nigeria. The over-dependency on oil revenue and inadequate efforts to mobilize funds from non-oil sources led to a serious decline in government revenue. External reserve deteriorated, and cause huge accumulated trade arrears and thereby limiting government effort in provision of basic amenities and social facilities.
Thus the poverty level in Nigeria continues to be on the increase over the past few decades. The 1991 world development report (WDR) showed that Nigeria has a significant number of her population categorized as poor people.
In recognition of the adverse effect of poverty in Nigeria, federal government set up Structural Adjustment Program (SAP) to reduce over dependency on oil and to provide food to all Nigerians. This had been followed by the introduction of other policies such as national FADAMA programs. Furthermore, the federal government made poverty reduction the core objectives of its annual budget and also initiated various policy measures aimed at promoting people’s welfare and reducing poverty in the economy.
Poverty becomes an issue of global dimension with nations striving either to reduce or eradicate it. The complexity of poverty and its impact on economies has attracted the attention of international organizations who work with government in different nations to fight poverty through formulating and spending on policies aimed towards reducing and eradicating poverty. Consequently, Nigerian fiscal policies especially as regard expenses in the areas that have positive impact on the well-being of the poor, have progressively being on the increase over the years. Recently, the Imo State government took a bold step towards poverty reduction by introducing free education to all the indigenes of the state up to the tertiary level.
Finally, the extent to which government spending have impacted on the well-being of the people especially the poor prompted this study.
- Statement of the Problem
Government at all levels in the country and even international development agencies agree that one of the basic developmental problems facing Nigeria is that of growing incidence of poverty despite government expenditure on different poverty alleviation programs. In Nigeria, poverty has been on the increase and the increase can be attributed to inequality existing in the economy, macro-economic instability and inconsistency in government policies. Poverty is found to be worst in the rural areas. It is characterized by malnutrition, low income, inadequate employment opportunities, lack of standard education, inadequate medical facilities, poor economic infrastructure, low life expectancy and sub-standard housing.
Most policies have failed in their attempt to alleviate these problems, and this research was aimed at finding out the reason and consequently seeks how to design new programmes or redesign existing ones to have proper poverty focus.
1.3 Objectives of the Study
The broad objective of this study is to examine the impact of public spending on poverty reduction in Nigeria. The study has the following specific objectives:
- To examine the impact of public capital spending on poverty reduction in Nigeria.
- To determine the impact of public recurrent spending on poverty reduction in Nigeria.
- To ascertain whether there is long-run relationship between the dependent variable and each of the independent variables.
1.4 Research Questions
This research work attempts to address the questions;
- What is the impact of public capital spending on poverty reduction in Nigeria?
- What is the impact of public recurrent spending on poverty reduction in Nigeria?
1.5 Research Hypotheses
This research work is guided by the following hypotheses which are stated below;
Hypothesis 1:
H0: Public capital spending has no significant impact on poverty reduction in Nigeria.
H1: Public capital spending has significant impact on poverty reduction in Nigeria.
Hypothesis 2:
H0: Public recurrent spending has no significant impact on poverty reduction in Nigeria.
H1: Public recurrent spending has significant impact on poverty reduction in Nigeria.
1.6 Significance of the Study
The significance of this research work lies in the fact that;
- The findings of this research work will be useful to the government agencies and parastatals, as it would be useful for improved insight on the current poverty profile and better strategies to alleviate them as well as efficacy of public spending on economic in Nigeria.
- This research work will also contribute to the advancement of the existing literature on the impact of public spending on poverty reduction in Nigeria.
- Finally, since no knowledge is a waste, this work will assist Nigerians, students of economics, other related courses and also other researchers will see it as a veritable material in their field of study.
1.7 Scope and Limitations of the Study
This study is limited to the analyses of the impact of public spending on poverty reduction in Nigeria from 1981 – 2014. The choice of this period is based on the economic history. The 1980s witnessed a radical change in Nigeria economy, which led to the introduction of structural adjustment program (SAP). It is also the period when the standard of living index fell, resulting in further rise in the incidence of poverty. Furthermore, not all sectors of the economy were used in looking at how government expenditure helps in poverty reduction. The sectors used are those that have direct impact on people’s welfare, which include agriculture and water resources, health, housing and environment, education, transportation and communication.
This research work suffered some limitations because research in Economics has never been easy with the researchers. In most cases the researcher is subjected to a number of difficulties. The activities involved in this research were stressful; and the time required to carry out the research was highly limited as the researcher required time for other academic activities.
Finally, despite of the above problems encountered, by the special grace of God, the objectives of this study will be achieved.
1.8 Organization of the Study
This study is divided into five chapters. The first chapter provides background to the topic and justifying reasons for the study. The second chapter presents related literature that has been done on the topic. The third chapter, which is research methodology presents how to carry out the research, this includes model specification, estimation technique, sources of data etc. The fourth chapter deals with data presentation, analysis and discussion of findings. The fifth chapter, which is the final chapter, presents the summary of findings, conclusion, and recommendations.
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