The Effect of Federal Government Size on Economic Growth in Nigeria, 1961-2011

This study investigates whether there is statistical evidence for a causal relationship between federal government expenditures and growth in real per-capita GDP in the Nigeria, using long and up to date available time series data (1961-2011). After studying the time-series properties of these variables for stationarity and cointegration, we adopted Toda and Yamamoto’s (1995) Granger non-causality tests and investigate Granger causality in detail in the context of a Vector Autoregressive Model. The Empirical results from cointegration test indicate that there exists no long-run relationship between government expenditure and economic growth in Nigeria. The Toda and Yamamoto’s causality test results show that Wagner’s Law does not hold over the period being tested. However, using VAR Granger causality test we found a weak empirical support in the proposition by Keynes that public expenditure is an exogenous factor and a policy instrument for increasing national income in the short run. Keywords: Federal government size, Wagner’s Law, Cointegration, Granger causality, Vector Autoregressio

The Effect of Federal Government Size on Economic Growth in Nigeria, 1961-2011

This study investigates whether there is statistical evidence for a causal relationship between federal government expenditures and growth in real per-capita GDP in the Nigeria, using long and up to date available time series data (1961-2011). After studying the time-series properties of these variables for stationarity and cointegration, we adopted Toda and Yamamoto’s (1995) Granger non-causality tests and investigate Granger causality in detail in the context of a Vector Autoregressive Model. The Empirical results from cointegration test indicate that there exists no long-run relationship between government expenditure and economic growth in Nigeria. The Toda and Yamamoto’s causality test results show that Wagner’s Law does not hold over the period being tested. However, using VAR Granger causality test we found a weak empirical support in the proposition by Keynes that public expenditure is an exogenous factor and a policy instrument for increasing national income in the short run. Keywords: Federal government size, Wagner’s Law, Cointegration, Granger causality, Vector Autoregressio

Bounds Testing Approaches to the Analysis of Macroeconomic Relationships In Nigeria

The main objective of the paper is to estimate the dynamic interrelation among the macroeconomic variables viz., real output, money supply, government expenditure, inflation, exchange rate, interest rate, trade openness and financial deepening using annual data for Nigeria covering the period from 1970 to  2013 using ARDL approach to cointegration. The bounds test revealed that there exists a long-run relation between real output, money supply, interest rate and exchange rate when the price and financial deepening variables were the dependent variables. However, reverse cointegration relationships were not found when real output, money supply, government expenditure, exchange rate, interest rate and trade openness were the dependent variables. This study finds feedback effect from the short run dynamics between government spending and money supply, trade openness and government spending, trade openness and real output, trade openness and financial deepening, real output and financial deepening, and finally financial deepening and nominal effective exchange rate. Furthermore, the short run dynamics revealed a unidirectional causality from money supply to inflation, from government spending to exchange rate and to financial deepening, and from interest rate to financial deepening. The policy implication that can be deduced from the above findings are: Interest rate will not serve as an efficient intermediate target for the monetary policy; policy should be geared towards promotion of international trade and financial development; government spending should be checked especially extra budgetary spending in order to reduce money in circulation and subsequently control inflationary tendency in the economy. Keywords: Real Output, Money, Price, Interest Rate, Exchange Rate, ARDL JEL Classifications: E41, E52, C2