Cointegration And Causality Analysis of Government Expenditure And Economic Growth In Nigeria

Abstract- The study investigates government expenditure and economic growth in Nigeria using cointegation and causality analysis. The study employs Augmented Dickey-Fuller ADF unit root test Kwiatkowski Philips Schmidt and Shin KPSS Test Johansen based Cointegration and Granger Causality Test. The ADF and KPSS tests indicate that the series are all integrated of order one I1. The results from the Johansen Cointegration tests indicate three long-run relationships between government expenditure and economic growth. While the test for causality shows that economic growth granger-cause government expenditure. The study also indicates that there exist two unidirectional causality running from GDP to TCE and GDP to TRE which supports the Wagners Law that government expenditure affects the economic growth. The regression results indicates that the coefficients of TCE TRE TDE and THE have positive and statistically significant effect on economic growth. The results of Error Correction Model ECM have negative signs and the Error Correction term EC indicate that there exists long run relationship between economic growth and Government expenditure. This show that its takes more years to attain equilibrium. The study therefore concludes that government expenditure causes economic growth. Based on the results obtained the study recommends that government should ensure that capital and recurrent expenditures are properly managed to accelerate economic growth. Moreso government should promote efficiency in the allocation of resources on human development by encouraging more private sector participation to ensure productivity-intensive growth.