INFRASTRUCTURAL SPENDING AND ECONOMIC GROWTH IN NIGERIA: 1980-2015
The study examined the relationship between infrastructural spending and economic growth in Nigeria between 1980 and 2015. More specifically, the study assessed the impact of infrastructural spending on health, education, agriculture and oil on economic growth in Nigeria. Data collected on the variables of interest were subjected to the econometric techniques of Unit-root test, Johansen Cointegration test, Ordinary Least Square, Error Correction Model and Granger causality test. Result from the unit-root test showed that infrastructural spending on health, education and oil became stationary at first-order difference while real GDP and infrastructural spending on agriculture were stationary at level. The Johansen cointegration test showed no unique long-run relationship between infrastructural spending and economic growth in Nigeria. The regression result revealed that infrastructural spending on agriculture, education and oil positively but weakly contributed to economic growth while infrastructural spending on health retarded economic growth in Nigeria. Furthermore, the ECM result showed that the speed of adjustment from short-run to long-run equilibrium is 11% per annum and the granger causality produced a unidirectional relationship, running from health infrastructural spending to economic growth. Based on the findings, the study suggest that amongst others that government capital spending especially in industries and agriculture, if properly managed, will raise the nation’s productivity capacity and employment which will in turn increase economic growth in Nigeria.
1.1 BACKGROUND OF THE STUDY
Infrastructural spending is an important instrument tool used by the government to control the economy. It plays a vital role in the effective functioning of an economy whether advanced or emerging. Infrastructural spending was birthed from revenue allocation which refers to the redistribution of the fiscal capacity of the government between various levels of government. Generally speaking, infrastructural spending affects aggregate resources combined with fiscal and monetary policies.
In the Nigerian economy, public spending or expenditure can broadly be categorized into capital and recurrent expenditure. The recurrent expenditure are government expenses on administration such as wages, salaries, interest on loans, maintenance etc. whereas expenses on capital projects like roads, railways, airports, seaports, education, health, etc. are referred to as capital expenditure or infrastructural spending (Obinna, 2003). Public expenditure in Nigeria can also be classified into exhaustive and transfer expenditure. Exhaustive expenditure is incurred when government actually consumes and makes purchases of factor inputs while transfer expenditure does not involve purchases of factor inputs by the government. (Maku, 2014).
One of the main purposes of infrastructural spending by the government is to provide infrastructural facilities and the provision and maintenance of these facilities require a huge amount of money. Expenditure on infrastructural investment is expected to contribute positively to growth. However, transitory economies spend heavily on physical infrastructures to improve the economic welfare of the citizenry and enhance the production of goods and services across all economic sectors so as to foster national output. If government spending is used to finance investment in roads, education, health, agriculture etc, these investments will have direct social and economic effects on the country through the creation of new opportunities and influx of foreign and domestic investment (Joasphat & Oliver, 2012).
The size of government expenditure and its effect on economic growth has generated interest among scholars over years. Scholars argue that increase in government expenditure on socioeconomic and physical infrastructures boosts economic growth. For instance, government spending on health and education raises the level of human capital development of a country. Similarly, expenditure on infrastructures such as roads, communication, power and the like, reduces the cost of production, raises private sector participation and raises the profitability of firms thus contributing positively to growth (Abdullah, 2000; Corray, 2009; Maku, 2014). The provision of infrastructural services to meet the demands of business, households and other economic agents poses a great challenge in the economic growth process of developing economies like Nigeria. According to World Bank Development Report (2015), developing economies invest about US$200 billion per annum, which equals to about 4% of their GDP and 20% of their total investment. Tremendous increase in infrastructural facilities has been achieved.
Infrastructural spending in Nigeria rose in recent years as a result of the large proceeds realized from the sales of petroleum and also due to the increased demand for public utilities. Available statistics showed that total capital expenditure have continued to rose in the last three decades. Government spending on infrastructures and other capital projects rose from N10.1 million in 1980 to N24.0 million in 1990, N239.4 in 2007, N759.3million in 2010, N1.1 billion in 2011 and N1.5 billion in 2015 (CBN, 2015). However, this rising spending on infrastructures and capital projects have not translated to meaningful growth and development for the country, as Nigeria still ranks among the poorest countries in the world. Furthermore, many Nigerians live in abject poverty, many graduates are unemployed and 85% of the citizenry live on less than US$1 per day. Moreover, macroeconomic indicators such as balance of payments, inflation rate, GDP per capita, exchange rate have not been remarkable so far.
It is pertinent to state that infrastructural spending have not been increasing proportionally to economic growth in Nigeria. Between 1980 and 1990, the growth rate of GDP fell from 57.15% to 2.87% and growth rate on infrastructural spending rose from 23.2% to 41.2%, indicating an inverse relationship between the two periods. Also, between 2000 and 2015, growth rate on infrastructural spending rose from 40.8% to 46.4% while the GDP growth rate fell slightly from 8.79% to 6.75%. Thus, infrastructural spending has been greater than GDP growth in the same period (CBN, 2015).
1.2 STATEMENT OF PROBLEM
The relationship between infrastructural spending and economic growth is important for all developing economies like Nigeria, most of which have experienced increasing level of infrastructural spending and have achieved low levels of economic development overtime.
Since independence, the revenues accruing to Nigeria has been on the increase annually. Also infrastructural spending incurred by the government has been on the upward trend over years, despite this, Nigeria is still bedeviled with poor level of productivity in relation to demand for them, dilapidated state of existing infrastructural facilities, low level of technology, high rate of unemployment, dearth of functional and effective infrastructures, epileptic power supply, low per capita income, low savings and investment and many more. It is therefore apt to examine the effect of infrastructural spending on economic growth in Nigeria.
1.3 OBJECTIVES OF THE STUDY
The main objective of the study is to examine the effect of infrastructural spending on economic growth in Nigeria between for periods: 1980-2015.
More specifically, the study attempts to:
- To examine the effect of infrastructural spending on health on economic growth in Nigeria.
- To examine the effect of infrastructural spending on education on economic growth in Nigeria.
- To examine the effect of infrastructural spending on agriculture on economic growth in Nigeria.
- To examine the effect of infrastructural spending on oil on economic growth in Nigeria.
1.4 RESEARCH QUESTIONS
The following research questions raised in the study are:
- What is the effect of infrastructural spending on health on economic growth in Nigeria?
- What is the effect of infrastructural spending on education on economic growth in Nigeria?
- What is the effect of infrastructural spending on agriculture on economic growth in Nigeria?
- What is the effect of infrastructural spending on oil on economic growth in Nigeria?
1.5 RESEARCH HYPOTHESIS
Four (4) hypotheses were formulated to guide the study
1. H01: Infrastructural spending on health has no significant impact on economic growth in Nigeria.
2. H02: Infrastructural spending on education has no significant impact on economic growth in Nigeria.
3. H03: Infrastructural spending on agriculture has no significant impact on economic growth in Nigeria.
4. H04: Infrastructural spending on oil has no significant impact on economic growth in Nigeria.
1.6 JUSTIFICATION FOR THE STUDY
Nigeria spends substantial amount of money to provide infrastructures in the nation, despite these huge expenditure on infrastructures, no meaningful inclusive growth have been recorded in the economy. Moreover, the existing infrastructures have not been in good shape. Also, infrastructures in critical sectors such as education and health, which constitute the basic human capital development, have continued to deteriorate in recent times. It is therefore on premise, the study was conducted.
Also, most past studies have examined the aggregate impact of recurrent and capital spending on economic growth in Nigeria, but this study takes a different dimension by examining the effect of infrastructural spending on health, education, agriculture and oil on economic growth in Nigeria up to 2015.
1.7 SCOPE OF THE STUDY
The study is delineated to examine the effect of infrastructural spending on economic growth in Nigeria for the periods: 1980-2015.
1.8 PLAN OF THE STUDY
The study contains five chapters. The first chapter is the introductory part of the study. Chapter two reviews relevant literature found applicable to the study. Chapter three presents the research methodology, chapter four delves into data presentation, analysis and interpretation and the last chapter focus on the summary of research findings, conclusion and policy recommendations.