Impact of Government Capital Expenditure on Economic Growth:

Abstract

This study makes an analysis of the impact of government capital expenditure on economic growth in Nigeria over a period of 1986 to 2018. To achieve the objective of the study, annual time series data on GDP and capital expenditures on agriculture, education, defence and transportation were collected from the online database of Central Bank of Nigeria (CBN) and the Budget Office of the Federation (BOF). The data were analyzed using cointegration and vector error correction models. Result of the Johansen Co-integration test shows the existence of the long run equilibrium relationship among the variables. The results further show that capital expenditure on agriculture is positive but statistically insignificant. It shows that a percentage increase in capital expenditure on agriculture increases economic growth by about 0.16 %. However, capital expenditure on defence is negative and statistically significant. It reveals that a percentage increase in capital expenditure on defence decreases economic growth by about 2.51%. Furthermore, capital expenditure on education is positive and statistically significant. It shows that a percentage increase in capital expenditure on education increases economic growth by about 1.17%. In addition, capital expenditure on transportation is positive and statistically significant. It reveals that a percentage increase in capital expenditure on transportation increases economic growth by about 0.95%. In addition, the error correction term of the vector error correction model is -0.57 is negative and significant as expected, however it is low. Based on the findings, the study recommends that more resources should be allocated to capital expenditure on agriculture, education and transportation because of their positive impact on economic growth. However, Anti- Corruption agencies should be strengthened to fight mismanagement and corruption in the public sector especially in the defence sector. This will address the wastages in the sector and will contribute to the improvement of the economy as a whole.