Non-Linear Causal Links amongst Functional Recurrent Components of Government Spending and Nigeria’s Economic Growth
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Published:
Jun 28, 2024
Keywords:
K dmax, Nonlinear Causality, Recurrent Spending, Toda-Yamamoto, VAR
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Abstract
This research work examined the relationship between components of government recurrent spending and economic growth in Nigeria. Government recurrent spending is split into four categories, namely: economic services, administration, transfers and social services. The aim is to isolate and place emphasis on their individual relationship with economic growth between 1981 and 2022. Within the VAR Toda-Yamamoto specification, nonlinear causal relationships were analysed using positive and negative shocks generated from the ARDL framework. Results from the empirical finding after unit root (all of order 1) and co-integration (at least one co-integrating vector) tests were carried out and indicated that administration has a causal relationship that is unidirectional with economic expansion. Also, all the functional components of recurrent government expenditures are jointly correlated to cause economic growth in Nigeria. These outcomes depict that Nigeria needs to increase its spending on all these functional components in order to have a better and robust growth and development. Capital projects like Ajaokuta Steel and the nation's refineries should also receive priority as it will indirectly increase the causal effects of recurrent components of government spending on the Nigeria’s economic growth.
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Babatunde, David, Mathew E. Rotimi, Isiaka O. Kolawole, and Olanipekun E. Falade. 2024. “Non-Linear Causal Links Amongst Functional Recurrent Components of Government Spending and Nigeria’s Economic Growth”. ABUAD Journal of Social and Management Sciences 5 (1), 28-46. https://doi.org/10.53982/ajsms.2024.0501.02-j.
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References
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https://doi.org/10.1515/jheec-2016-0005
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https://doi.org/10.2298/PAN1304457A
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https://doi.org/10.1007/s10644-020-09284-7
Atilgan, E., Kilic, D. & Ertugrul, H. (2017). The dynamic relationship between health expenditure and economic growth: is the health-led growth hypothesis valid for Turkey? The European Journal of Health Economics, 18(5), 567-574
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https://doi.org/10.1080/1331677X.2018.1436453
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https://doi.org/10.9734/AJEBA/2017/38552
Dritsaki, C. (2017). Toda-Yamamoto Causality Test between Inflation and Nominal Interest Rates: Evidence from Three Countries of Europe. International Journal of Economics and Financial Issues. 7(6), 120-129.
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https://doi.org/10.1515/rmeef-2017-0001
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Forte, F. &Magazzino, C. (2016). Government size and economic growth in Italy: a timeseries analysis. European Scientific Journal, 12(7), 149-168.
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Gukat, B. T., &Ogboru, I. (2017). An empirical analysis of government expenditure and economic growth in Nigeria. Journal of Economics and Development Studies. Vol. 5(4),122- 134.
https://doi.org/10.15640/jeds.v5n2a11
Iheanacho, E. (2016). The contribution of government expenditure on economic growth of Nigeria: Disaggregated approach. International Journal of Economics and Management Sciences. doi:10.4172/2162-6359.1000369. www.omicsonline.org.
https://doi.org/10.4172/2162-6359.1000369
Jibir, A., & Aluthge, C. (2019a). Modelling the determinants of government expenditure in Nigeria. Cogent Economics and Finance. Vol. 7(1), 10.1080/23322039.2019.1620154.
https://doi.org/10.1080/23322039.2019.1620154
Katrakilidis, C. &Tsaliki, P. (2009). Further evidence on the causal relationship between spending and economic growth: the case of Greece, 1958-2004. ActaOeconomica, 59(1), 57-78.
https://doi.org/10.1556/aoecon.59.2009.1.3
Lim, D. (1983). Government recurrent expenditure and economic growth in Less Developing Countries. World Development. 11(4). 377-380.
https://doi.org/10.1016/0305-750X(83)90048-7
Molefe, K., & Choga, I. (2017). Government expenditure and economic growth in South Africa: a vector error correction modeling and Granger Causality Test. Journal of Economics and Behavioral Studies, 9(4), 164-172.
https://doi.org/10.22610/jebs.v9i4.1831
Musgrave A. & Musgrave P.B. (1989). Public finance in theory and practice. New Delhi, Tata McGraw Hill Education Private Limited.
Obi, C. K. (2020). Government Recurrent Expenditure Effect on Economic Growth: Evidence from Expenditure on some Selected Variables. ActaUniversitatisDanubius (AUDOE), Vol. 16, no. 1/2020, pp. 228-237
Okoro, A. S. (2013). Government spending and economic growth in Nigeria. Global Journal of Management and Business Research Economics and Commerce, 13(5), 21-30.
Olayungbo, D. O. & Olayemi, O. F. (2018). Dynamic relationships among non-oil revenue, government spending and economic growth in an oil producing country: Evidence from Nigeria. Future Business Journal, 4(2), 246-260.
https://doi.org/10.1016/j.fbj.2018.07.002
Onifade, S.T., Cevik, S., Erdogan, S., Asongu, S. & Bekun, F. V. (2020). An empirical retrospect of the impacts of government expenditures on economic growth: new evidence from the Nigerian economy. Economic Structures 9(6). https://doi.org/10.1186/s40008-020- 0186-7
https://doi.org/10.1186/s40008-020-0186-7
Onwube, O., Chukwu A. B., Ahamba, K. O., et al., (2021). Determinants of Life Expectancy in Nigeria: An Autoregressive Distributed Lag Approach. Journal of Sustainability Science and Management. Volume 16 Number 8.
https://doi.org/10.46754/jssm.2021.12.012
Sims, C. A. (1980b). Macroeconomy and Reality. Econometrica: Journal of the Econometric Society, 1-48
https://doi.org/10.2307/1912017
Srinivasan, P. (2013). Causality between public expenditure and economic growth: the Indian case. Journal of Economic and Management, 7(2), 335-340.
Tade, O. (2019). Policing Looted Funds with the Whistle: Newspaper Coverage of the Anti-corruption Crusade in Nigeria. Africa Development 44(4), 73-90.
Thabane, K. &Lebina, S. (2016). Economic growth and government spending nexus: Empirical evidence from Lesotha. African Journal of Economic Review. 4(1): 86-100.
Toda, H. Y., & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics. Vol. 66(1-2), 225-250.
https://doi.org/10.1016/0304-4076(94)01616-8
Umar, M. and Dahalan, J. (2016). An Application of Asymmetric Toda-Yamamoto Causality on Exchange Rate-inflation Differentials in Emerging Economies. International Journal of Economics and Financial Issues. Vol. 6. Issue 2 • 2016
Usman, A., Mobolaji, H. I., Kilishi, A. A., Yaru, M. A., & Yakubu, T. A. (2011). Public expenditure and economic growth in Nigeria. Asian Economic and Financial Review. Vol.1(3), 104- 113.
Wagner, A. (1876). 'Three extract on public finance'. Classics in the theory of public finance (Eds) Musgrave and Peacock. New York: St Martin Press.
Warner A. M. (2006). Raising Labour Participation as a source of pro - poor growth. (G. K.-L. Pleskovic, Ed.) Equity and Development, pp. 173-187.
World Bank (2015). Introduction to Public Sector Governance and Accountability Series: Public Expenditure analysis. Washington, D.C. The World Bank Group.
Zakari, M. B. & Button, M. (2022). Confronting the Monolith: Insider Accounts of the Nature and Techniques of Corruption in Nigeria. Journal of White Collar and Corporate Crime. 100-108.
https://doi.org/10.1177/2631309X211004567
https://doi.org/10.1177/2319714520938901
Akanbi, O. A. (2014). Government expenditure in Nigeria: determinants and trends Mediterranean. Journal of Social Sciences, 5(27), 98-107.
https://doi.org/10.5901/mjss.2014.v5n27p98
Aluthge, C., Jibir, A., & Abdu, M. (2021). Impact of Government Expenditure on Economic Growth in Nigeria, 1970-2019. CBN Journal of Applied Statistics. Vol. 12 No. 1. P.139-174
https://doi.org/10.33429/Cjas.12121.6/6
Ampah, I.K. &Kolosz, B. (2016). Wagner versus Keynes. The causal nexus between government expenditure and economic growth: An empirical study of Burkina Faso. Journal of HeterodoxEconomics. 3(2), 74-101.
https://doi.org/10.1515/jheec-2016-0005
Antonis, A., Constantinos, K. & Persefoni, T. (2013). Wagner's law versus Keynesian hypothesis: Evidence from pre-WWII Greece. PanoEconomicus 4. 457-472.
https://doi.org/10.2298/PAN1304457A
Arestis, P., Sen, H. and Kaya, A. (2021) 'On the linkage between government expenditure and output: empirics of the Keynesian view vs. Wagner's law', Economic Change and Restructuring, Vol. 54, pp.265-303.
https://doi.org/10.1007/s10644-020-09284-7
Atilgan, E., Kilic, D. & Ertugrul, H. (2017). The dynamic relationship between health expenditure and economic growth: is the health-led growth hypothesis valid for Turkey? The European Journal of Health Economics, 18(5), 567-574
https://doi.org/10.1007/s10198-016-0810-5
Babatunde, D., Olayeni, R. O., & Falade, O. E. (2019). Dynamic Relationship Among Oil Wealth, Capital Accumulation and Economic Growth in Nigeria. Ife Journal of Economics and Finance (IJEF). Vol. 8 (March & September.
Babatunde, S. A. (2018). Government spending on infrastructure and economic growth in Nigeria. Economic Research-EkonomskaIstraˇzivanja. Vol. 31(1), 997-1014.
https://doi.org/10.1080/1331677X.2018.1436453
Barro, R. J. (1990). Government spending in a simple model of endogenous growth. Journal of Political Economy, 98(5), 103-125.
https://doi.org/10.1086/261726
Bzan, C., Quiroz, V.J.A. and Olivares, Y.M. (2022) 'Wagner's Law vs. Keynesian Hypothesis: dynamic Impacts', Sustainability, Vol. 14, pp.1-25.
https://doi.org/10.3390/su141610431
Chukwu, A. E. & Udochukwu, G. O. (2019). Pattern of Government Recurrent Expenditure and Economic Growth in Nigeria. International Journal of Innovative Research and Development. Vol. 8. p.I10.
https://doi.org/10.24940/ijird/2019/v8/i10/OCT19012
Churchill, S. A., Ugur, M., & Yew, S. L. (2017). Does government size affect per-capita income growth? A hierarchical meta-regression analysis. Economic Record, 93(300), 142-171.
https://doi.org/10.1111/1475-4932.12307
Diyoke, K. O., Yusuf, A., &Demirbas, E. (2017). Government expenditure and economic growth in lower middle-income countries in Sub-Saharan Africa: an empirical investigation. Asian Journal of Economics, Business and Accounting, 5(4) 1-11.
https://doi.org/10.9734/AJEBA/2017/38552
Dritsaki, C. (2017). Toda-Yamamoto Causality Test between Inflation and Nominal Interest Rates: Evidence from Three Countries of Europe. International Journal of Economics and Financial Issues. 7(6), 120-129.
Ebaid, A., & Bahari, Z. (2019). The nexus between government expenditure and economic growth: evidence of the Wagner's law in Kuwait. Review of Middle East Economics and Finance, 15(1), 1-9.
https://doi.org/10.1515/rmeef-2017-0001
Ebong, F., Ogwumike, F., Udongwo, U., & Ayodele, O. (2016). Impact of government expenditure on economic growth in Nigeria: a disaggregated analysis. Asian Journal of Economics and Empirical Research, 3(1), 113-121.
https://doi.org/10.20448/journal.501/2016.3.1/501.1.113.121
Falade, O. & Babatunde, D. (2020). Functional Government Spending, Unemployment and Poverty Reduction in Nigeria. Journal of Economics and Development Studies. Vol. 8. 10.15640/jeds.v8n1a9.
https://doi.org/10.15640/jeds.v8n1a9
Folster, S. & Henrekson, M. (2001). Growth effects of government expenditure and taxation in rich countries. European Economic Review. Vol. 45(8), 1501-1520.
https://doi.org/10.1016/S0014-2921(00)00083-0
Forte, F. &Magazzino, C. (2016). Government size and economic growth in Italy: a timeseries analysis. European Scientific Journal, 12(7), 149-168.
https://doi.org/10.19044/esj.2016.v12n7p149
Gukat, B. T., &Ogboru, I. (2017). An empirical analysis of government expenditure and economic growth in Nigeria. Journal of Economics and Development Studies. Vol. 5(4),122- 134.
https://doi.org/10.15640/jeds.v5n2a11
Iheanacho, E. (2016). The contribution of government expenditure on economic growth of Nigeria: Disaggregated approach. International Journal of Economics and Management Sciences. doi:10.4172/2162-6359.1000369. www.omicsonline.org.
https://doi.org/10.4172/2162-6359.1000369
Jibir, A., & Aluthge, C. (2019a). Modelling the determinants of government expenditure in Nigeria. Cogent Economics and Finance. Vol. 7(1), 10.1080/23322039.2019.1620154.
https://doi.org/10.1080/23322039.2019.1620154
Katrakilidis, C. &Tsaliki, P. (2009). Further evidence on the causal relationship between spending and economic growth: the case of Greece, 1958-2004. ActaOeconomica, 59(1), 57-78.
https://doi.org/10.1556/aoecon.59.2009.1.3
Lim, D. (1983). Government recurrent expenditure and economic growth in Less Developing Countries. World Development. 11(4). 377-380.
https://doi.org/10.1016/0305-750X(83)90048-7
Molefe, K., & Choga, I. (2017). Government expenditure and economic growth in South Africa: a vector error correction modeling and Granger Causality Test. Journal of Economics and Behavioral Studies, 9(4), 164-172.
https://doi.org/10.22610/jebs.v9i4.1831
Musgrave A. & Musgrave P.B. (1989). Public finance in theory and practice. New Delhi, Tata McGraw Hill Education Private Limited.
Obi, C. K. (2020). Government Recurrent Expenditure Effect on Economic Growth: Evidence from Expenditure on some Selected Variables. ActaUniversitatisDanubius (AUDOE), Vol. 16, no. 1/2020, pp. 228-237
Okoro, A. S. (2013). Government spending and economic growth in Nigeria. Global Journal of Management and Business Research Economics and Commerce, 13(5), 21-30.
Olayungbo, D. O. & Olayemi, O. F. (2018). Dynamic relationships among non-oil revenue, government spending and economic growth in an oil producing country: Evidence from Nigeria. Future Business Journal, 4(2), 246-260.
https://doi.org/10.1016/j.fbj.2018.07.002
Onifade, S.T., Cevik, S., Erdogan, S., Asongu, S. & Bekun, F. V. (2020). An empirical retrospect of the impacts of government expenditures on economic growth: new evidence from the Nigerian economy. Economic Structures 9(6). https://doi.org/10.1186/s40008-020- 0186-7
https://doi.org/10.1186/s40008-020-0186-7
Onwube, O., Chukwu A. B., Ahamba, K. O., et al., (2021). Determinants of Life Expectancy in Nigeria: An Autoregressive Distributed Lag Approach. Journal of Sustainability Science and Management. Volume 16 Number 8.
https://doi.org/10.46754/jssm.2021.12.012
Sims, C. A. (1980b). Macroeconomy and Reality. Econometrica: Journal of the Econometric Society, 1-48
https://doi.org/10.2307/1912017
Srinivasan, P. (2013). Causality between public expenditure and economic growth: the Indian case. Journal of Economic and Management, 7(2), 335-340.
Tade, O. (2019). Policing Looted Funds with the Whistle: Newspaper Coverage of the Anti-corruption Crusade in Nigeria. Africa Development 44(4), 73-90.
Thabane, K. &Lebina, S. (2016). Economic growth and government spending nexus: Empirical evidence from Lesotha. African Journal of Economic Review. 4(1): 86-100.
Toda, H. Y., & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics. Vol. 66(1-2), 225-250.
https://doi.org/10.1016/0304-4076(94)01616-8
Umar, M. and Dahalan, J. (2016). An Application of Asymmetric Toda-Yamamoto Causality on Exchange Rate-inflation Differentials in Emerging Economies. International Journal of Economics and Financial Issues. Vol. 6. Issue 2 • 2016
Usman, A., Mobolaji, H. I., Kilishi, A. A., Yaru, M. A., & Yakubu, T. A. (2011). Public expenditure and economic growth in Nigeria. Asian Economic and Financial Review. Vol.1(3), 104- 113.
Wagner, A. (1876). 'Three extract on public finance'. Classics in the theory of public finance (Eds) Musgrave and Peacock. New York: St Martin Press.
Warner A. M. (2006). Raising Labour Participation as a source of pro - poor growth. (G. K.-L. Pleskovic, Ed.) Equity and Development, pp. 173-187.
World Bank (2015). Introduction to Public Sector Governance and Accountability Series: Public Expenditure analysis. Washington, D.C. The World Bank Group.
Zakari, M. B. & Button, M. (2022). Confronting the Monolith: Insider Accounts of the Nature and Techniques of Corruption in Nigeria. Journal of White Collar and Corporate Crime. 100-108.
https://doi.org/10.1177/2631309X211004567