Public Expenditure and Economic Growth: An Application of Cointegration and Granger Causality Tests on Nigeria

Abstract

This study aims at investigating the long run and causal relationships between public expenditure and economic growth in Nigeria. The study uses annual time series dataset for a sample of 39 years from 1970 to 2008, on the basis of data availability. To achieve this objective, Johansen (1988) cointegration approach and Granger causality test have been applied. The results indicate a significant long run positive relationship between public expenditure and economic growth in Nigeria. Similarly, from the results, it is concluded that there is a significant positive long term relationship between population growth rate and economic growth in Nigeria. Furthermore, the results of Granger causality test indicate a weak significant bidirectional causality at 10% level, running from public expenditure to economic growth and in turn, from economic growth to public expenditure. This has the implication that, policies that will promote sustainable economic growth and public expenditure may be pursued concurrently