Public Expenditure and Economic Growth in Nigeria : A Vector Autoregressive Analysis

This study attempts to determine the causal relationship between public expenditure and economic growth in Nigeria. Annual series data between 1970 to 2012 is used and the VAR technique is applied to bring evidence regarding this important issue. The tools of analysis are the impulse response function (IRF) and choleski variance decomposition of the reduced form model. The empirical results shows that per capita real total expenditure was inflationary both in the short-term and long-term. Evidence have shown that the capital expenditure implications of recurrent spending pre-dominates, and this portends that a significant part of capital budget is for meeting the infrastructure needs of recurrent operation especially political exigencies. The study recommends a strategy to rebuild fiscal buffers through a better prioritization of public expenditure as well as continued subsidy reform and improved tax administration