THE GROWTH OF FEDERAL GOVERNMENT EXPENDITURE IN NIGERIA, 1962 – 1995: A STRUCTURAL AND INSTITUTIONAL ANALYSIS

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THE GROWTH OF FEDERAL GOVERNMENT EXPENDITURE IN NIGERIA, 1962 – 1995: A STRUCTURAL AND INSTITUTIONAL ANALYSIS

Abstract:

Federal Government spending in Nigeria has grown in both absolute and relative terms over the years but more especially since the mid-1970s. In absolute terms, total spending increased manifold: from about N168.3 million in 1962 to nearly N249 billion in 1995, while in relative terms it represented just about 8.0 percent of the country’s GDP in 1962, but by the late 1970s, it had reached over 40.0 percent (of the GDP) The study, thus, sought among other things to locate or determine the major sources of this phenomenal growth as well as highlight the distinguishing features which combine to define the structure and growth profile of public spending at the level of the Federal Government in Nigeria. A characteristic feature which has dominated government spending over the years is the disproportionate share of consumption or recurrent expenditure in the overall expenditure profile. Likewise, the administrative sector, which includes general administration, defence and internal security has over the years accounted for the bulk of government non-debt related spending. Expenditures on key functional sectors of economic and social services respectively, have remained quite low and unimpressive, especially when viewed within the context of their relationship with the GDP. Here also, another prominent feature is the rapid growth in debtrelated (transfers) spending both in absolute and relative terms. On the basis of the results of regression analysis based on time-series data covering a 34 year period, (1962-1995), we established a strong and positive relationship between the growth of total spending and the growth of the GDP, and thus in the process confirming the relevance of Wagner’s postulations on the growth of public expenditure to the Nigerian situation. Likewise, results for sectoral spending reveal a positive and direct relationship between sectoral spending and the GDP. The correlation coefficient of the relationship between sectoral spending and the GDP ranged between 0.83 and 0.94, while the income elasticity coefficients ranged between 0.89 and 1.24. In addition, OLS procedures in conjunction with Granger Causality test were used to test the central hypotheses of the study, that is, the influence of both relative price effects or “Baumol” Effects, as well as recurrent revenues on the growth of Federal Government spending. The results revealed that relative price effects impacted positively and significantly on the growth profile of govemment expenditure, while recurrent revenues also had on their own influenced spending. The relationship between government revenue and its expenditures was, however, not as strong as was expected, and it was observed that the relationship was actually bi-directional. Institutional factors equally had their own effect on the growth of government spending. The general results of a simple statistical procedure adopted to determine the extent of institutional influences confirmed that bureaucrats have played an influential role in the growth of government spending. In particular, the fragmented and incremental nature of budgeting in the country allowed bureaucrats an agenda-setting role. The study also found that a combination of other institutional factors including the over centralization of functions and responsibilities facilitated, in large part, by the intervention of the military in the country’s political economy contributed significantly to the growth of Federal Government spending over the years. In concluding the study, it was observed that in order to facilitate the efficient use of the nation’s fiscal resources, there was need to pursue a conscious and sustained public expenditure reduction programme. It was equally recommended that a comprehensive review of the budgeting system need be conducted. Finally, the study was of the view that government should be made smaller, more compact and more efficient.

THE GROWTH OF FEDERAL GOVERNMENT EXPENDITURE IN NIGERIA, 1962 – 1995: A STRUCTURAL AND INSTITUTIONAL ANALYSIS

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