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PROJECT TOPIC  : GOVERNMENT EXPENDITURE AND ECONOMIC GROWTH IN NIGERIA (1970 - 2010)

PROJECT PROPOSAL

BACKGROUND OF THE STUDY
This research work purports to examine the role of public expenditure on the economic growth of Nigeria. The roles of the fiscal authority in developed and developing countries vis à vis developed countries are markedly different. In both developed and developing countries there is a concern for raising living standards over time, but this need is much more pronounced in developing countries, given the extent and depth of poverty in these countries. In the relative absence or perpetual weakness of institutions to mobilize and direct savings, the role of the state is crucial in harnessing the resources for development (Gwartney, 1998). Since the regulatory apparatus is weak and market signals imperfect, the state has an important role to play in allocating investment funds. Further, with widespread poverty, there is the expectation that fiscal expenditures would play a major role in anti poverty programs.

The relationship between economic growth and public spending is an important subject of analysis and debate Mitchell, (2005). A central question is whether or not public sector spending increases the long run steadily state growth rate of the economy. Some scholars are of the opinion that public expenditure, notably on physical infrastructure and human capital, can be growth enhancing although the financing of such expenditures can be growth retarding in the short-run.

The theoretical foundation of the study shall be the Keynesian model, which indicates that during recession, a policy of budgetary expansion should be taken to increase the aggregate demand in the economy thus boosting the gross domestic product (GDP). Increase in government spending translates into increased employment in the public sector and increased orders of products from suppliers and firms in the business sector. In other words, employment rises, income and profits of suppliers and firms increase, and they, too, can hire more employees to produce the goods and services ordered by the government. The unemployed, who have now found work, whether in the public sector or the business sector, enjoy an increase in income, and their demand and purchase of products increase. Larger profits also increase the purchasing power of firm owners and suppliers and the overall growth results in an increased demand for goods and investments.

According to the Keynesian model, if demand increases, business concerns produce more merchandise and services, and the result is a substantial increase in the GDP, far more than the increase in government spending. Budgetary expansion acts as a catalyst to increase demand and production within sectors that do not have direct contact with public demand. Thus the Keynesian school of thought stresses that an utopian society cannot be achieved and as such there is need for government interferences through her fiscal operations; notably expenditure.

THE RESEARCH PROBLEMS/RESEARCH QUESTIONS
Policymakers are divided as to whether government expansion helps or hinders economic growth. Advocates of bigger government argue that government programs provide valuable “public goods” such as education and infrastructure. They also claim that increases in government spending can bolster economic growth by putting money into people’s pockets. Proponents of smaller government have the opposite view. They explain that government is too big and that higher spending undermines economic growth by transferring additional resources from the productive sector of the economy to government, which uses them less efficiently. They also warn that an expanding public sector complicates efforts to implement pro-growth policies - such as fundamental tax reform and personal retirement accounts - because critics can use the existence of budget deficits as a reason to oppose policies that would strengthen the economy. So, which side is right?

A major concern about the Keynesian school of thought is that; If government interference is an effective remedy for recession and has no side-effects, why do so many oppose a policy of budgetary expansion? Firstly, a large public sector diminishes the business sector in personnel and in sources of investment. It may be maintained that in times of recession, much of the work force is not employed at all, and therefore, employment in the public sector does not come at the expense of the private sector.

Furthermore, in a growing economy, government spending can be curtailed, the government sector can revert to a lower level of spending and personnel can be re-directed to the business sector. However, while budgetary expansion is easy in a recession, cut-backs during economic highs are very difficult. No minister or director of a public institution relinquishes control, authority and budgets easily. The result is an inflated and inefficient public sector even after the recession is over, and a lower rate of growth in the private sector than its potential would indicate.

Noteworthy is the efficiency of the private sector, particularly compared to the government sector. A public organization can continue its activity even if the services it provides are no longer required. Its directors and the relevant minister will not be quick to relinquish power which is a function of the jobs they control and the funds at their disposal. The result is superfluous services, wasting personnel and capital, which could be directed to production that provides well-being and benefit to individuals in the economy.

The relationship between public expenditure and growth is especially important for developing countries (Nigeria inclusive), most of which have experienced increasing levels of public expenditure over time. There is evidence that, unlike in the case of developed countries, consumption is not negatively related with economic growth. This study shall empirical investigate this relationship in the case of Nigeria, with a view of explaining the reason behind the observed causality between them.
This research work shall be guided by the following research questions:
(i) How does the government expenditure impacts on economic growth in Nigeria?
(ii) What is the trend of government expenditure in Nigeria?
(iii) What are the factors limiting the effectiveness of government expenditure in terms of economic growth in Nigeria?
(iv) How could the government expenditure be made to stimulate economic growth in Nigeria?

OBJECTIVES OF THE STUDY
This study intends to appraise the relationship between government expenditure and economic growth over the years. The trend of government expenditure will be assessed with reference to the Nigerian economy. The specific objectives are:
(i) To examine the impact of public expenditure on economic growth.
(ii) To identify the trends of public expenditure in Nigeria.
(iii) To examine the constraints limiting the effectiveness of public expenditure as an engine of economic growth.
(iv) To proffer solution to the problem identified in (iii) above.

JUSTIFICATION FOR THE STUDY
Whilst acknowledging the fact that this study is not the first of its kind using Nigerian data, however, it shall go a little further than earlier works to correctly capture all known composition of public expenditure during the years under review to assess the impact of public expenditure on economic growth.

The relationship between government spending and growth is especially important for developing countries, most of which have experienced increasing levels of public expenditure over time. This has tended to be associated with rising fiscal deficits, suggesting their limited ability to raise sufficient revenue to finance higher levels of expenditure. Rising deficit tends to retard economic growth in developing countries because of the inability of such countries to check inflation during deficit years. Thus, this study gives a good insight into problems created by rising government expenditure and how the same impacts on growth.

Also, this study will enable policy makers to promote economic growth without recourse to huge deficit finance. This often results in inflation particularly when increase in government expenditure is not matched by corresponding increase in output. The bitter experience of the oil boom era is still fresh in many minds.

SOURCES OF DATA AND DATA REQUIREMENT
Secondary data would be used in this study. The relevant data to be used would be sourced from the Central Bank of Nigeria’s statistical reports, annual reports and statement of accounts for the years under review. The relevant data that would be sourced include: gross domestic product, index of industrial production, index of agricultural production and the government expenditure for the period between 1970 and 2010.

RESEARCH HYPOTHESES/ASSUMPTIONS
HYPOTHESIS I
H0 : That government expenditure has no positive effect on agricultural production.
HYPOTHESIS II
H0 : That government expenditure has no positive effect on industrial production.
HYPOTHESIS III
H0 : That government expenditure has no positive effect on the general performance of the economy

RESEARCH METHODOLOGY
The Econometric approach that would be adopted to examine the relationship between government expenditure and economic growth in Nigeria shall be the Ordinary Least Square (OLS) method. This econometric method would be used because it is very reliable and widely used in researches. Three simple regression models shall be adopted to capture the effect of government expenditure on selected macroeconomic variables and the Nigerian economic growth.
The test of the hypotheses earlier stated would be done at 5% level of significance and as such, the generalization of the study findings would be limited to this extent.

SCOPE AND LIMITATIONS OF THE STUDY
The growth of government spending and its impact on the performance of the economy shall be examines with data spanning from 1970 to 2010. Attention shall mainly be focused on exhaustive and productive government expenditure during the period under the review.

One major limitation of the study is that the data to be used for the empirical analysis may be porous as such data are often manipulated for political reasons. Besides, the study shall cover a limited number of years because of non-availability of data.

PLAN OF THE STUDY
This study shall contain five chapters. The first chapter shall contain the background of the study, the statement of the research problem, the objectives of the study, the research questions etc that would guide the study. Chapter two would present the literature review on the subject matter. The methodology to be adopted in the study would be stated in chapter three. Chapter four shall focus on the presentation and interpretation of the regression results. The last chapter – chapter five, would present the summary of the findings, conclusion and appropriate recommendations.

REFERENCES
Mitchell, D. J. (2005) “The Impact of Government Spending on Economic Growth”. Backgrounder, published by The Heritage Foundation.
Gwartney, J.; Lawson, R. and Holcombe, R. (1998) “The Size and Functions of Government and Economic Growth”. Joint Economic
Committee, U.S. Congress, April, pp. 20.

Keywords: government expenditure, economic growth, nigeria