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GOVERNMENT EXPENDITURE AND ECONOMIC GROWTH IN NIGERIA: COINTEGRATION ANALYSIS AND CAUSALITY TESTING

Keywords: Bounds Test , Causality , Capital expenditure , Recurrent expenditure.

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Abstract:

This study investigates the relationship between government expenditure (disaggregated into capital and recurrent) and economic growth in Nigeria over the period(1961-2010). It employs the Bounds Test approach to co-integration based on unrestricted Error Correction Model and Pair wise Granger Causality tests. The results fromthe Bounds Test indicate that there exists nolong-run relationship between government expenditure and economic growth in Nigeria only when real GDP is taken as dependent variable. In addition, the causality results reveals that government capital expenditure granger causes economic growth. While no causal relationship was observed between government recurrent expenditure and economic growth. Therefore, the policy implication of this findings is that any reduction in capital expenditure would have a negative repercussions on economic growth in Nigeria.

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