Investigating the Expenditure-Economic Growth Nexus in Nigeria the Presence of Structural Breaks: A Nonlinear ARDL Cointegration Approach

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International Journal of Research and Innovation in Social Science (IJRISS) | Volume V, Issue IX, September 2021 | ISSN 2454–6186

Investigating the Expenditure-Economic Growth Nexus in Nigeria the Presence of Structural Breaks: A Nonlinear ARDL Cointegration Approach

Yusuf Shamsuddeen Nadabo¹* and Suleiman Maigari Salisu²
¹Department of Economics, Maryam Abacha American University of Niger
²Department of Economics, Umaru Musa Yar’adua University, Katsina
*Corresponding Author

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Abstract
The performance of Nigeria’s economy has not been satisfactory despite the remarkable increase in government spending (expenditure) over the years. This development warrants re-examination of the relationship between government expenditure and economic growth in the presence of structural breaks. The main objective of this study is to re-evaluate the expenditure and growth nexus in Nigeria using the Nonlinear Autoregressive Distributed Lag cointegration approach on annual time series data from 1970-2019. The cointegration result revealed asymmetric cointegration between government spending and economic growth (long-run nonlinear relationship). The results also illustrated that a positive change in government spending has a positive and statistically significant effect on economic growth while a negative change has no significant impact on economic growth during the study period. In addition, in support of the Keynesian hypothesis, the study found unidirectional causality running from government expenditure to economic growth. Thus, the paper concludes that Nigeria’s economic growth is more responsive to a positive change in government spending than a negative change. Following these findings, the paper recommended increasing government spending to be channeled to provide critical physical infrastructure, human development, Research, and Development (R&D).

Key Words: Economic growth, Government spending, and Nonlinear ARDL Cointegration.

1. Introduction

Wagner (1893) proposed a tendency for public expenditure to grow in response to national income (economic growth) in the long run. This proposition, popularly referred to as Wagner law in the literature, implies a positive relationship between public sector growth and national income. More specifically, Wagner’s law assumes that a relative growth of public expenditure accompanies economic growth and that the direction of the causality runs from economic growth to government expenditure.