CHAPTER ONE INTRODUCTION

1. 1 BACKGROUND OF THE STUDY

Government expenditure no doubt is an important instrument for a government to control the economy of a nation. Economists have been well aware of the effects in promoting economic growth.

Anyway, the general view is that government expenditure notably on social and economic infrastructure can be growth enhancing although the financing of such expenditure to provide essential infrastructural facilities including transport, electricity, telecommunication, water and sanitation, waste disposal, education and health can be growth retarding (Olukeyode, 2009).

Nowadays, the relation between government expenditure and economic growth has continues to generate sense or controversies among scholars in economic literature (Inuwa, 2012).

According to him, the nature of the impact of government expenditure on economic growth is in conclusion, and from the view point of the student researcher is still not incontrovertible. As a matter of fact, while some author or researcher believed that the impact of government expenditure on growth is negative or non-significant (Tuban, 2010). Others believed that the impact is positive and significant (Alexiou, 2009).

The structure of Nigeria government expenditure can boldly be categorized into capital and recurrent expenditure (Muritata 2011).

The recurrent expenditure is basically government expenses on administration such wages salaries, interest on loans, maintenance cost, etc. However, the expenses on capital project like roads, airports, education, telecommunication, electricity generation etc. are generally referred as capital expenditure (Maritata 2011).

Ironically, the effect of government spending in Nigeria growth is still a puzzle and an unresolved issue indeed theoretically, it is an unresolved issue.

Although the theoretical positions on the subject are quite diverse, the conventional wisdom is their or spending is a source of economic instability or stagnation. The research does not conclusive support the conventional wisdom a few studies report position and significant negative relationship between government spending and economic growth while others find significantly negative or no relation between an increase in growth in real output.

It is against the backdrop, the study is undertaken to empirically evaluate the impact of government expenditure on economic growth in Nigeria. The general view is that public expenditure either recurrent. Nurudeen and Usman (2010) added that in Nigeria, government expenditure has continued to rise due to the huge receipts from production and sales of crude oil and the increase demand for public (utilities) like good roads, communication, power, education and health. Besides, there is increasing need to provide both internal and external security for the people and the nation.

The classical economic school of thought led by Adam smith deemphasized the role of government in the management of the economy and argued that the economy is inherently self-adjusting and self-equilibrating. This argument is predicated on the belief that the invisible band” would allocate resources more efficiency and this philosophy was branded “laissez-fain” (Smith, 1776).

Smith in his ‘wealth of the nations’, argued in favour of free market system which is however regulated to some extent by the government. He pointed out that the price of the commodity was regulated by the market and the demand of those who are willing to pay the price for such commodity. Under competitive environment, the price usually tends towards natural prices at the centre.

Smith puts great faith in the regulatory functions of competition both on demand and supply. He reorganized that sometimes condition may prevail which keep the market prices of commodities well above natural prices (Bell 1967:157).

However, the great depressions of 1930’s exposed the inability of the market forces and the inability of the economy to absolutely control the economy as predicted by Adam smith. Hence, Keynes (1936), opined that the government should intervene and stabilize or better still ameliorate the wide swing in the economy.

Therefore, it became an acknowledged tenet of the prevailing development theory of the 1950s and 1960s that the economy and urgent problems of development can not be solved by private sector. So the government must get away from its traditional caretaker and regulatory functions and move into the era of active participation in the productive sector. This development made the public sector the prime mover of the economy and as a result, the state was viewed by many as an engine of development.

In less developed countries (LDC) such as Nigeria. The intervention of the public sector in economic development especially between 1960s and 1970s was necessary because of the need to:

“Tackle the problems of economic growth and development as well as income distribution.

“Provide certain indispensable services without which community life would be meaningless and which their nature cannot be left in the hands of private enterprises, for example, some basic socio-economic infrastructures and services which include national defense, maintenance of law and order, etc.

In Nigeria, the public sector has contributed greatly to the growth and development of the economic since the attainment of political independence in 1960.

1.2          STATEMENT OF PROBLEM

In the last decade, Nigeria economy has metamorphosed from the level of million of naira and postulating to trillion naira, on the expenditure side of the budget. This will not he surprised if the economy is experiencing surplus or disequilibrium on the records of balance of payment. This indicates that something is definitely wrong either with the way government expands budget or with the ways and manners it has always been computed.

Unfortunately, the rising government expenditure has not translated to meaningful growth and development, as Nigeria ranks among the poorest countries in the world. In addition, many Nigerians have continued to wallow in abject poverty, while more than 50 percent live on less than US $ per day, Couple with this, is dilapidated infrastructure (especially roads and power supply that has led to the collapse of many industries, including high level of employment. (Nurudeen and Usman, 2010).

Moreover, macroeconomic indicators like balance of payment, input obligations, inflations rates, exchange rate, and national stamps reveal that Nigeria (has not faced well in the last couple of years.

1.3. OBJECTIVE OF THE STUDY

The objective of study is basically divided into general and specific objective, the general objective is to examine the impact of government expenditure or the economic growth of Nigeria. However, the specific objective is as follows.

1 . To ascertain the relationship between government real total capital expenditure and the economic growth in Nigeria.

1. To find out if there is a significant relationship between government recurrent expenditure and Nigeria economic growth.

3 . To find out if the Nigeria government recurrent revenue enhances the growth of the economy.

1. To find out the impact of trade openness a growth of the Nigeria economy.

1.4. THE RESEARCH QUESTIONS

The study will he guarded by the Following question.

1. Is there an efficient. government spending in Nigeria
2. What are the problem of government spending in Nigeria
3. Does the government provision, for infrastructure promote economic growth and development?

1.5. RESEARCH HYPOTHESIS

In order to adequately evaluate the impact of government expenditure on the economic growth of Nigeria, the null hypothesis is used as follows:

H0: There is no significance relationship between government spending and economic growth.

Hi: There is significant relationship between government spending and economic growth

1.6 SIGNIFICANCE OF THE STUDY

The study in completion would be of the following importance to the users. The research findings would help the MDAs top operating in the country to evaluate contribution of the government to the economic growth and development of the nation. The relevance  of this study cannot be over emphasized going by the regardless of the Nigeria economic growth the Nigeria government will find outcome of the study useful in terms of knowing how best to structure yearly budgets so as to benefit the citizen and enhance the economy, policy makers no doubt will find this study very important to them. Economists and outcome of the study useful in terms of further researchers.

The study would also serve an important sources of information or references materials to other students who would want to conduct a research or related project. It is equally hoped that all corporate bodies, individuals, farmers, fishers and many other would be enlightened on the various assistance by government of Nigeria economic.

1.7 SCOPE OF THE STUDY

The finding and research results were based in Secondary data gotten from looks, statistical bulletin covering entire economic of Nigeria, etc. the study is also limited to the MDAs in development of Nigeria economic. Finance and time was also a factor that restricted a large scope of data collection to carryout the research.

1.8 LIMITATION OF THE STUDY

Every research work has certain which fall short of the ideas which the researcher has established or recognize. The following some of the limitation.

1. Lack of Funds: There were inadequate funds in the part of the researcher to enable him travel extensively to source for materials within the city of Bori and Port Harcourt to seek for more information to complete the project.
2. Death of Relevant Material: The study also suffered some hitches, because of non-availability of relevant and necessary materials that. could facilitate the study

Therefore, the researcher relied on the ones within his disposal to handle the study.

1.9 ORGANIZATION OF THE STUDY

The study is designed and organized into five chapters follows.

Chapter one: The introductory chapter embodies the background of the study, statement. of problem, objective of the study, research question, research hypothesis, significance of the study, scope of the study, limitation of the study and definitions of terms.

In Chapter two: Review of the related literature is presented while Chapter three briefly discussed the research methodo1oi of the study. Chapter four speak about data presentation, analysis and Chapter five is the final chapter and it covers the summary, covers the summary conclusion and recommendations.

1.10 DEFINITION OF TERMS

IMPACT: This is the powerful effect that something has on something or somebody. The act of one object fitting another therefore with which this happens.

GROWTH: The world “growth means an increase in the size, amount of degree of something.

NIGERIAN ECONOMY; Nigeria is a name of a country its economy is the relationship between production, trade, and the support of money in the region.

GOVERNMENT EXPENDITURE: This can be defined as the spending of all public over which the federal government exercise a substantial control, These public units include states and local government and public corporation.

RECURRENT EXPENDITURE: These are expenses carried out by the government for daily basis. It is also expenses on administrative services like maintenance of roads provision of salaries and wages for workers and pensioners. It is a payment of services rendered the public authorities.

CAPITAL EXPENDITURE: These are expenses incurred on acquisition, establishment, and execution of capital project/assists that are not made frequently, such as building of roads/ bridges, electricity, parks, state corporations, schools etc. hence capital expenditure are expenses on goods. That will last for along period of time.

ECONOMIC DEVELOPMENT: This affect of public expenditure on economic development lie in increasing the growth rate of the economy providing more employment opportunities raising incomes and standard, of living, encouraging private initiatives and enterprises and about regional balance in the economy.