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
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
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
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.