IMPACT OF GOVERNMENT CAPITAL EXPENDITURE ON ECONOMIC GROWTH IN NIGERIA

Abstract

This study examines the effects of government capital expenditure on economic growth in Nigeria, specifically focusing on the sectors of machinery, education, and power from 1990 to 2023. Despite extensive research in this area, there remains a significant gap in understanding the precise long-term impacts of these investments on economic growth within the Nigerian context. This study aims to fill this gap by employing Autoregressive Distributed Lag (ARDL) models, integrating economic theories such as Keynesian economic theory and endogenous growth theory, to provide a robust analytical framework. Data sourced from the Central Bank of Nigeria (CBN), the National Bureau of Statistics (NBS), and World Bank databases were meticulously analyzed to measure the immediate and delayed effects of capital expenditures on growth. The findings reveal that capital expenditure on machinery has a significant positive impact on economic growth in the immediate term but exhibits a negative effect in subsequent periods. This suggests an initial boost in productivity and industrial capacity, which may later encounter issues of overinvestment or inefficiencies. In contrast, expenditure on education does not show a significant immediate impact on economic growth; however, it demonstrates substantial positive effects in the long term. This underscores the critical role of educational investment in fostering sustainable economic development through the enhancement of human capital. Similarly, capital expenditure on power significantly enhances economic growth in the short term, but this effect diminishes over time, indicating potential inefficiencies or the maturation of the infrastructure. Based on these findings, the study recommends optimizing the scale and timing of investments in machinery, sustaining and enhancing investments in education to yield long-term benefits, and conducting regular reviews and upgrades of power infrastructure to maintain its positive economic impact. These strategic recommendations are intended to guide policymakers in effectively utilizing capital expenditure to stimulate and sustain economic growth in Nigeria.