Public Expenditure and Economic Growth: Evidence from Nigeria and South Africa

This study examined the relationship between public expenditure and economic growth in Nigeria and South Africa. The econometric methodology employed was the co integration and Wald/Pair wise Granger causality test. The presence of long run equilibrium found led to the use of Vector Error Correction Mechanism (VECM). Result indicates as follows: (i) stable long run relationship between public expenditure and economic growth was identified for Nigeria with the co integration test indicating five (5) co integrating vectors and four (4) for South Africa. (ii) public recurrent expenditure has significant negative impact on economic growth in Nigeria, but has insignificant positive impact on economic growth in South Africa. (iii) public capital expenditure in Nigeria and South Africa has significant negative impact on economic growth. (iv) the Wald test for Nigeria indicates causality between public expenditure and economic growth. Keynes theory of public expenditure therefore holds for Nigeria economy. The Wald test also reveals that there is causality between economic growth and public capital expenditure of South Africa. This shows that Keynes theory is applicable to capital expenditure of South Africa. The findings also showed that there is no causality between recurrent public expenditure and economic growth in South Africa. The study therefore makes the following recommendations: (i) Governments of Nigeria and South Africa should adopt consistent fiscal policy measures that can entrench budget discipline, transparency and accountability. (ii)Governments of Nigeria and South Africa should adhere strictly to IMF recommended capital to recurrent budget ratio of 60:40 percent which will ensure that reasonable proportion of the budget is dedicated to capital projects that has the capacity to stimulate economic growth and create employment.(iii) Government of Nigeria and South Africa should see the urgent need to create conducive environment for private sector active participation in economic activities and implement with all sincerity a Public Private Partnership Programme (PPPP). These will ensure increased efficiency in the allocation of resources and tend to reduction in government size.