Government Size and Economic Growth in Nigeria

Abstract

The escalation of public sector spending has emerged as a pressing concern in Nigeria’s policy discourse, raising alarm among economists and fiscal analysts. The persistent growth in government outlays continues to strain macroeconomic stability significantly, prompting calls for empirical evaluation. This research builds upon prior scholarship by conducting a functional disaggregation of Nigeria’s public expenditure profile to evaluate its economic implications. Grounded in the Neoclassical economic tradition, the study adopted the Autoregressive Distributed Lag (ARDL) technique, contingent upon the confirmation of integration properties and long-run equilibrium through unit root and cointegration diagnostics. Annual time-series data from 1981 to 2023 served as the empirical foundation. The model’s outcomes revealed that administrative expenditure exerts positive, though statistically insignificant, influence on long-run economic performance (δ = 0.902286, p = 0.7655). In contrast, disbursements directed toward social and community services were associated with a negative but statistically insignificant effect (δ = -2.35707, p = 0.4352). Expenditures targeting economic services demonstrated a robust and statistically significant inverse relationship with long-term growth (δ = -1.62307, p = 0.0000). Similarly, transfer payments were found to have a significantly detrimental impact on economic expansion (δ = -0.45866, p = 0.0000). In light of these findings, the study advocates for a strategic reorientation of fiscal policy. Key recommendations include prioritising investments in productivity-enhancing sectors, enhancing the transparency of fiscal operations, and advancing trade liberalisation to foster sustainable growth trajectories.