PUBLIC SECTOR EXPENDITURE AND ECONOMIC GROWTH IN NIGERIA: A CO-INTEGRATION ANALYSIS (1981-2014) BY CHIKE, ONYEDIKACHI EMMANUEL

Using a time series data of 34years (1981-2014), this study examined the relationship between Public Sector Expenditure and Economic Growth in Nigeria employing co-integration analysis. Data for this study was sourced from CBN statistical bulletin.  Cobb Douglas production function was used to develop the model as Real GDP per capita (RGDPC) was adopted as the dependent variable while Public sector expenditure (PSEX) and rate of domestic investment (GFCF) were the independent variables in the first model. In the second model, RGDPC remained the dependent variable while Public Sector Recurrent Expenditure (PSREX), Public Sector Capital Expenditure (PSCEX) and rate of domestic investment (GFCF) were adopted as the independent variables. The variables were tested for stationarity using ADF and confirmed by PP test. The result showed that the variables are I(1). Johansen co-integration was employed which showed the presence of co-integration. VECM result showed that there is a long run positive relationship between public sector expenditure and economic growth in Nigeria which is consistent with Keynesian theory. Granger causality test explained that the  causality  between  public  sector  expenditure  as  well  as  public sector  capital  and  recurrent  expenditures  and  economic  growth  in  Nigeria  are indirect. They  flow  from  rate of domestic  investment to  economic  growth. This study advises the government to spend more on productive capital investment.