EFFECT OF GOVERNMENT EXPENDITURE ON NIGERIA'S ECONOMIC GROWTH: EVIDENCE FROM ARDL BOUNDS TESTING, 1981-2024

Abstract

This study investigated the effect of government expenditure on economic growth in Nigeria over 1981-2024, addressing persistent debates about optimal government size and its growth implications. Despite theoretical expectations linking government expenditure to growth through infrastructure development and human capital formation, empirical evidence remains inconclusive, particularly for Nigeria's post-oil shock economy. Using ARDL Bounds testing methodology, this research quantitatively examines government expenditure effects on economic growth, with foreign direct investment and trade openness as control variables. Time series data from CBN statistical bulletins revealed mixed-order integration, necessitating the ARDL approach which confirmed long-run relationships among variables. Results show that government expenditure demonstrates an insignificant effect on economic growth at the 5% level, while foreign direct investment and trade openness significantly influence real GDP. The joint effect of all explanatory variables accounts for 99% of growth variations. This study contributes to fiscal policy literature by providing recent evidence on Nigeria's expenditure-growth nexus and highlighting the importance of expenditure efficiency over expenditure levels. The findings suggest that The National Planning Commission should develop robust project monitoring and evaluation systems to ensure timely and cost-effective implementation of government projects for effective and efficient result.