Public Expenditure and Economic Growth in Nigeria: A Disaggregate Analysis Abubakar Attahir Babaji Department Of Economics, SRM University Kattankulathur, 603–203, Tamil Nadu, India JEL Classification: H50, H59, E62 Online published on 25 May, 2016. Abstract The relationship between public spending and economic growth has been a major source of concern to economists and policy makers; while some find the relationship to be positive, others argue it to be negative. Since most studies carried out an aggregate impact of public spending on economic growth, this study took a step further by examining a disaggregate impact of the components of public spending on economic growth, taking Nigeria as a case study. The Augmented Dickey Fuller (ADF) test for unit root, Johansen Cointegration test, Vector Error Correction Model (VECM) and Impulse Response Function (IRF) were employed for analysis. ADF test result showed variables to be integrated of order one I(1), Johansen Cointegration Trace test and Max-Eigen Value test show variables to be cointegrated i.e. have long run association. Long run relationship result shows a negative and significant impact of Recurrent Transfer Payment (RTR), Capital Socio-Economic Expenditure (CSE) and Openness (OPP) on economic growth, while the negative impact of Recurrent Administration Spending (RAD) was statistically insignificant. Long run result also showed a positive and significant impact of Capital Administration Expenditure (CAD), Investment (INV), and Labour (LAB) on Economic Growth. Short run dynamics of the model showed a positive and significant impact of RAD and OPP on economic growth of Nigeria, while RTR was significantly negative. Other variables were statistically insignificant. The speed of adjustment term showed that about 41 percent correction towards long run equilibrium is completed in a year. Impulse Response Function (IRF) showed the response of GDP to shock in RAD and INV to be positive all through the periods considered, while the response to RTR, CAD, CSE and OPP was negative. The response to shock in LAB was almost zero, though marginally negative. Policy recommendations by the study includes a complete overhaul of the public spending structure of Nigeria by directing more spending towards capital expenditure as against the current pattern of about 70 percent recurrent and 30 percent capital. The government also needs to as a matter of importance block all loopholes and checkmate corrupt practices, while also ensuring that funds are judiciously used for the purposes they were allotted. Top Keywords Public Expenditure, Economic Growth, Nigeria, Disaggregate Analysis. Top |