PUBLIC EXPENDITURE AND ECONOMIC DEVELOPMENT IN NIGERIA

PUBLIC EXPENDITURE AND ECONOMIC DEVELOPMENT IN NIGERIA

This study is aimed at examining the relationship between public expenditure and economic development in Nigeria.

CHAPTER ONE: INTRODUCTION

Background of the Study

It is noted that the government has large financial resources and is in a better position to finance economic and social development. The role of public expenditure in economic development lies in increasing the growth rate of the economy, providing more employment opportunities, rising income, and wealth inequalities. These can be achieved when the total spending is increased or decreased depending on the circumstance as well as the objectives achieved.

Over the decades, the size of government and its effect on economic growth, and vice versa, has been an issue of sustained interest. The relationship between government expenditure and economic growth has continued to generate a series of debates among scholars. The government performs two major functions– protection (security) and provisions of certain public goods (Al-Yousif, 2000). Scholars argue that an increase in government expenditure on socio-economic and physical infrastructures encourages economic growth, for example, government expenditure on health and education raises the productivity of labor and increase the growth of national output. Similarly, expenditure on infrastructure such as roads, communication, power, etc, reduces production costs, increases private sector investment and profitability of firms, thus fostering economic growth.

There are important sectors of the economy in which government expenditure could be a channel to promote economic growth. The sectors like defense, agriculture, transportation and communication, health, and education could have the essential potential to move an economy forward. Government expenditure on the agriculture sector could help provide food, security for the citizenry, and raw materials for industrial use. Government expenditure on the transportation and communication sector could enhance business activities.

The structure of Nigeria’s public expenditure can be broadly categorized into capital and recurrent expenditure. The capital expenditure is expensed on capital projects like roads, airports, education, telecommunication, etc, whereas recurrent expenditure is government expenses on administration such as wages, salaries, interest on the loan, maintenance, etc.

Government spending in Nigeria has continued to rise due to the huge receipts from production and sales of crude oil, and the increased demand for public (utilities) goods like roads, communication, power, education, and health. There is an increasing need to provide both internal and external security for the people and the nation. Available statistics show that government expenditure (capital and recurrent) has continued to rise in the last three decades. For instance government expenditure was these figures in 1980- N780,000,000 for defense, N260,700,000  for transportation and communication, N106,200,000  for health, N468,000,000 for agriculture and N154,900,000 for education. In 1990 government expenditure rose from N1,606,000 for defense, N961,000,000 for transportation and communication, N498,000,000 for health, N1,966,000 for agriculture, N2,294,000 for education. Again, government expenditure rose in 2010 from N6,820,900 for defense, N18,438,900 for transportation and communication, N12,405,200 for health, N3,574,000 for agriculture and N18,756,300 for education. The various sectors of government expenditure have risen between 1980 and 2018.

Government expenditure is a major component of national income as in the expenditure approach to measuring national income   (Y=C+I+G(X-M) (Oziengbe 2013). This implies that government expenditure (recurrent and capital expenditure) is a key determinant of the size of the economy and economic growth and development. However, it could act as o two-edged sword. It could significantly boost aggregate output, output especially in developing countries such as Nigeria, where there are massive market failures, poverty traps and it could also have adverse consequences such as unintended inflation and boom-bust cycles (Wang & Wen, 2013).

Public expenditure is a fundamental value for the growth and development of any economic and political system. Unfortunately, rising government expenditure has not translated into meaningful growth and development, as Nigeria ranks among the poorest countries in the world. Also, many Nigerians have continued to wallow in abject poverty, while more than 50% live on less than

$1USD per day, food is costly, drinkable water is scarce, and failure in producing electricity (Raheem, Ayana, & Fashedemi, 2014) in many areas of the country. Coupled with this is dilapidated infrastructure (especially roads and power supply) that has led to the collapse of many industries, including a high level of unemployment. Moreover, macroeconomic indicators like the balance of payment, import obligations, inflation rate, exchange rate, and national savings reveal that Nigeria has not fared well in the last couple of years (Olugbenga &Owoye, 2007, Robinson, Eravwoke & Ukavwe, 2014). This study focuses on examining public expenditure and economic development in Nigeria.

Statement of the Problem

Over the years, government expenditure (capital and recurrent) has continued to rise with a view of economic growth to ease the burden of its citizens. But despite the increase, there are still public outcries over decaying dilapidated infrastructural facilities such that health care, education, and other growth-promoting and welfare-enhancing institutions are near the state of collapse, most of the roads have become death traps due to their deplorable condition, the power sector is in a state of decline which has led to the downfall of some industries, food is costly and drinkable water is scarce in many areas of the country. Therefore the government spending on infrastructure in Nigeria is just a waste of resources because the growth in the economy does not depict infrastructural development.

Also, in Nigeria, the rate of illiteracy is very high. Most of the workers are unskilled and they make use of outmoded capital, equipment, and methods of production. By implication, their marginal productivity is extremely low and this leads to low real income, low savings, low investments, and consequently a low rate of capital formation. It was indicated on the document that an adult literacy rate of at least 65% would be attained by 2008. But overtime the following issues relating to the concept have remained unresolved: Uneven distribution of skilled manpower, misemployment of human capital in Nigeria, poor reward system retarding the acquisition, and development of human capital.

The problem is that the economic growth recorded has not translated into improved welfare as expected in some nations (Babatunde, 2015; Mitchell, 2005). This problem is of concern to this study because the trend has to be reversed. Therefore this study is based on an objective that considers the identified problem and is necessary because scholars are still arguing on the matter based on their divergent views. For instance, Mandl, Dierx, and Ilzkovitz (2008) suggest that there should be further improvement in the efficiency and effectiveness of public spending. Nonetheless, their study does not cover developing nations where there is a shortage of such research. The present study fills this gap in that it covers Nigeria, which is a developing nation. Their study is not specific as to what improvements are needed and how to address these, nor did the theoretical framework rely upon in the study discussed. The current study uses a theoretical framework to help fill this gap and makes recommendations based on the findings.

Aim and Objectives of the Study

The major objective of this study is to examine the relationship between public expenditure and economic development in Nigeria. The specific objectives are:

• To ascertain if capital expenditure influence infrastructure development in Nigeria.
• To examine if recurrent expenditure influence infrastructure development in Nigeria.
• To determine if capital expenditure influence human capital development in Nigeria.
• To examine if recurrent expenditure influences human capital development in Nigeria.

Research Questions

The research questions which at the end of this work would have been answered include:

• How does capital expenditure influence infrastructure in Nigeria?
• What is the relationship between recurrent expenditure and infrastructural development in Nigeria?
• How does capital expenditure relate to human capital development in Nigeria?
• What is the relationship between recurrent expenditure and human capital development in Nigeria?

Research Hypotheses

The following hypotheses were formulated for this study and are stated in the null form (HO):

H0₁: There is no significant relationship between capital expenditure and infrastructure development in Nigeria.

H0₂: There is no significant relationship between capital expenditure and human capital development in Nigeria.

H0₃: There is no significant relationship between recurrent expenditure and infrastructure development in Nigeria.

H0₄: There is no significant relationship between recurrent expenditure and human capital development in Nigeria.

Significance of the Study

This study on public expenditure and economic development in Nigeria will be a contribution to the federal government, state government, etc in Nigeria because it will guard their future spending. Secondly, the ministry of finance (a ministry that controls and administer government spending), other ministry departments and agencies (MDAs) and other government parastatals will find this work relevant as it helps to educate and guide them in making a recommendation to the government on where and what to spend them. This study will enhance the management team to present the accurate financial information of their firm. Finally, this work will serve as a point of reference to subsequent researchers just as it adds to existing literature.

Scope of the Study

• Content scope: This study is limited to the examination and evaluation of the impact of public expenditure on economic development.
• Geographical (Survey) scope: The study will be conducted in Nigeria.
• Unit of Analysis: The relationship between capital expenditure and recurrent expenditure on economic variables such as infrastructure and human capital development will be critically examined under the study for the period 2000-2018.

Limitation of the Study

• Time constraint: Because I simultaneously engage in this study with other academic work, this will consequently cut down on the time devoted to this research work.
• The data volume: It is time-consuming gathering and collecting a lot of data, putting it in my research, and most importantly putting it correctly without errors and mistakes.
• Lack of the previous study on the topic: This topic has not been adequately researched by many scholars and this has made sourcing for materials challenging and costly especially when it comes to access to data and getting new information from there or other hands.
• Access to Literature: The identification or understanding that there is a gap depends on the researcher’s level of access to the existing literature. But since I did not have access to a larger range of scientific literature, what might seem like a research gap might be a huge misconception.

But to overcome these limitations I’ll have to:

• Ground me in the research by addressing the large volume of data and having the appropriate parameters to organize the research;
• Take advantage of technology;
• Stay focused; keeping a close eye on the research questions and hypothesis, because sometimes the data collected may take me away from that;
• And finally, make out time no matter how little to complete this research.

Definition of Related Terms

• Expenditure: It is the payment of cash or cash equivalent for goods or services or charges against available funds in settlement of an obligation as evidenced by an invoice, receipt, voucher, or another such document.
• Economy: The state of a country or region in terms of the production and consumption of goods and services and the supply of money.
• National income: It measures the monetary value of the flow of output of goods and services produced in an economy over some time.
• Gross Domestic Product (GDP): It is the total value of everything produced in the country.
• Fiscal Policy: This is how a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy.
• Recession: This is a significant decline in economic activity, real GDP, real income, employment, industrial production, and sales following a decline in the aggregate demand for at least two quarters.
• Tax revenue: These are revenues collected from taxes on income and profits, social security contributions, taxes levied on goods and services, payroll taxes, taxes on the ownership and transfer of property, and other taxes.
• Capital Expenditure: They are expenses on capital projects like roads airports, education, telecommunication, etc.
• Recurrent Expenditure: These are government expenses on administration such as wages, salaries, interest on the loan, maintenance, etc.
• Human Capital Development: This is the collective skills, knowledge, or other intangible assets of individuals that can be used to create economic value for the individuals, their employers, or their community.
• Economic Growth: It is the increase in what a country produces over time. It is measured by Gross Domestic Product (GDP).
• Economic development: It is the process by which the economic well-being and quality of life of a nation, region, or local community are improved.
• Infrastructure development: It is the construction and improvement of foundational services to spark economic growth and improvements in quality of life.

Organization of the Study

This study is structured and presented into five chapters as follows:

Chapter one forms the introductory part of the study and is composed of the overview, statement of the problem, the aims, and objectives, research questions, research hypothesis, the significance of the study, the scope of the study, limitation of the study, definition of terms and organization of the study.

Chapter two covers the literature review which has an in-depth look at the relevant literature in this field of study. It also analyses the various theoretical approaches to the study.

Chapter three is designed to give an outline of the method used in the research, contained in this chapter are the research design, sampling procedures, and data collection.

Chapter four reveals data presentation and analysis.

Chapter five is concerned with a discussion of findings, offers, conclusion, and useful recommendations.