Analyzing the Impact of Public Expenditure on Economic Development: Evidence from Nigeria

Abstract

This study examines the relationship between public expenditure and economic development in Nigeria using econometric techniques such as cointegration and causality analysis. Economic development is measured through gross domestic product per capita, while public expenditure is analyzed based on sectoral allocations from the Central Bank of Nigeria spanning 1981 to 2015. The study employs tests for stationarity, Ordinary Least Squares estimation, and cointegration analysis to assess long-term relationships between public spending and economic growth. The results reject the null hypothesis of no significant association, confirming a strong link between public expenditure and economic development in Nigeria. Findings indicate that expenditures allocated to the Administration and Transfers sectors significantly impact economic growth, demonstrating statistical significance at the 1% level. However, expenditure on economic services exhibits a weaker influence than expected, revealing inefficiencies in resource allocation. The study highlights the underperformance of public spending, particularly in the economic and social/community services sectors. This shortfall is attributed to discrepancies between budgeted and actual expenditures, as well as inefficiencies in implementation. Additionally, inadequate funding for sectors directly affecting citizens' welfare, such as social and community services, further limits the effectiveness of public expenditure in driving economic progress. The findings emphasize the need for improved strategic resource allocation and policy implementation to maximize the benefits of public expenditure. Addressing inefficiencies and redirecting resources toward high-impact sectors can enhance Nigeria’s socioeconomic outcomes. Policymakers must prioritize effective budget execution and focus on sectors that directly influence development to ensure sustainable and inclusive economic growth.