1

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The role and importance of human capital in propelling the pace of economic growth and

development in emerging economies cannot be overemphasized. No country has ever achieved

sustained economic growth and development without huge investment in her human capital

which is manifested through expenditure on education and health.

Expenditures on education and health are regarded as investment in human capital because it

helps in skill formation and thus raises the ability to work and produce more (Jhingan 2009).

Education and health are basic objectives of development; they are important ends in themselves.

Health is central to well-being, and education is essential for a satisfying and rewarding life; both

are fundamental to the broader notion of expanded human capabilities that lie at the heart of the

meaning of development (Todaro and Smith, 2011). Quality education, good health and human

capital development produce trained entrepreneurs that can practically harness the natural

resources that will propel our nation to a greater advancement in technology.

Education has positive impacts on the economy and so, investment in education and training is

imperative if the aim is to propel the economy to higher level of productivity and income and

thereby accelerate the rate of economic growth. Education increases the number of

knowledgeable workers by improving their skills and enabling them to new challenges. In

addition, education enhances their occupational mobility, reduces the level of unemployment in

the economy, increases the earning capacity and productivity of the country’s work force,

improves access to health information which will increase life expectancy and, at the same time

lower the fertility rate. Therefore, education is capable of enhancing the efficient production of
 2

goods and services by ensuring thorough screening that the best people are selected and made

available for the world of research (Olayemi, 2012).

Despite the tremendous progress in expanding enrolment and increasing years of schooling since

1960, Nigeria is yet to benefit from such development in-term of increased growth. Schooling in

Nigeria has not delivered fully on its promise as the driver of economic success. Expanding

school attainment, at the centre of most development strategies, has not guaranteed better

economic conditions (Fadiya, 2010). Scholars attributed the failure of the Nigeria’s educational

system to promote economic growth to the poor state of the system (Uwatt, 2002, Chete and

Adeoye, 2002; Babatunde and Adefabi 2005). According to Babatunde and Adefabi (2005), the

education that most Nigerians receive is not very good. Children attend primary schools which

last for six years, but the education they receive there is not sufficient. The pupils to teachers

ratio there was 37 to 1 and the youth literacy rate was 13% for males and 20% for females up to

the late 1990s. As at 2017, the national female adult literacy rate was 59.3% while that of male is

70.3%. The low number of students in tertiary school can be easily explained in that spending

per student in tertiary schools is 529.8% of the GNP. Furthermore, public spending on education

was only 0.9% of the GNP in 2002 (World Bank, 2004).

Health comes next to education in the development of human resources. According to Yesufu

(2000), a good health policy is a means by which government can at once ensure that manpower

is generated in the right mix distributed in accordance with national priorities and ensure the

highest level of labour productivity. Health improvement influences morbidity and labour force

productivity. Thereby enhancing the process and speeding of economic development. Most

developing countries have given serious attention to the provision of public health, education and

social welfare services. This is because; it is believed that such measures could improve the
 3

quality of life of their people and their efficiency as productive agents thereby accelerating the

general socio-economic development of their nation. Since health and education status affects

the individual participation in economic activities and consequently the level of labour force in

an economy, a re-examination of the level of investment in human capital and sustainable growth

is highly imperative.

Human beings are the active agents who accumulate capital, exploit natural resources, build

social, economic and political organizations and carry forward national development. Clearly, a

country, which is unable to develop the skills and knowledge of its people and utilize them

effectively in the national economy, will be unable to develop anything else. Economists had

long realized the importance of human resource development in the development process. For

instance, besides emphasizing the importance of education at various points in” The Wealth of

Nations”, Adams Smith specifically includes the acquired and useful abilities of all the

inhabitants or members of the society in his concept to fixed capital. Alfred Marshal also

emphasizes the importance of education as a national investment and, in his view, “the most

valuable of all capital is that invested in human beings. In spite of this awareness, most early

economists still regard physical capital as the main component of a country’s productive wealth;

they still relegate natural and human capital to the background. It took the effort of Schultz

(1961a) and others to rediscover the importance of human capital, which has in a more recent

effort to incorporate investment in education and health into the mainstream of economic

analysis.

There can be no significant economic growth in any developing countries which Nigeria is not

an exception, without adequate investment expenditure on education and health. In the past,

much of the planning in Nigeria was centered on the spending on physical capital for rapid
 4

growth and development, without the recognition of the important role played by education and

health in the development process. Many developing countries including those of Sub Saharan

Africa and West African are yet to reach their maximum capacity in spending on the component

of human capital in boosting their economic growth. The lack of government spending on human

capital in these Sub Saharan Africa countries have contributed to numerous challenges ranging

from low quality of educational delivery, which consequently result to poorly equipped

graduates to poor infrastructures in healthcare (Ragan & Lipsey, 2005).

The World Bank (2010) specifies that Nigeria has found it difficult to grow her economy in her

quest to become a knowledge-based economy because of the challenges faced in the national

educational system. Prior to the study undertaken by the World Bank’s 2010, Odia and

Omofonmwan’s (2007) had reported that the Nigerian education system was constrained by

several challenges, which included poor funding, poor educational infrastructure, inadequate

classrooms, lack of teaching aids (such as projectors, computers, laboratories and libraries),

dearth of quality teachers and un-conducive learning environment. Moreover, they pointed that

emerged from the school system. These in addition, compound the problems that impede the

nation’s ability to cultivate the kinds of people that can serve as tools to facilitate economic

growth.

According to Ahmed (2010), some major challenges limiting the advancement of Nigeria’s

education system are low tertiary enrolment level, obsolete methods of teaching , strikes and

administrative hiccups, corrupt teachers asking bribes to pass students, frequent absence of

teachers during teaching periods, lack of ICT infrastructure and other teaching methods, and

poor funding. The organization categorized these problems into poor access to education, poor

quality of education and poor funding of education.

 5

1.2 Statement of the Problem

The financing of human capital investment in Nigeria has often been described as inadequate

with budgetary allocations to these sectors (especially health and education) hardly exceeding,

on average 4% of the nation’s total budgetary provisions (Orubuloye and Oni, 1996; Riman and

Apkan, 2012). For instance, the education and health care spending in Nigeria is segmented into

private and public spending. While public health expenditures in Nigeria account for just 20-30%

of total health expenditures, private expenditures on health account for 70-80% of total health

expenditure. The dominant private health expenditure is out-of-pocket expenses, and this

accounts for more than 90% of private health expenditures. Out-of-pocket expenditure as a

proportion of total health expenditure averaged 64.59% from 1998 to 2002. In 2003, it accounted

for 74% of total health expenditure (THE). It decreased to 66% in 2004 and later increased to

68% in 2005 (Soyibo, Olaniyan and Lawanson, 2009; Soyibo, 2005). This implies that

households bear the highest burden of health expenditure in Nigeria. The $5 per capita

expenditure on health in Nigeria is far below the $14 recommended by World Bank for Africa

and much lower than the $34 per capita recommended by WHO Macroeconomic Commission

for Health for low income countries to provide basic health care services. One can infer that out-

of- pocket expenditure is the major source of funding for childhood illnesses. The expenditure

appears grossly inadequate as the annual per capita out-of- pocket expenditure per under-five

child was $1.8 (Samboet al, 2004).

The comparatively low patronage of public health facilities may be a reflection of the level of

poverty in Nigeria. This puts a serious doubt on the government ability to improve accessibility,

reliability and affordability of health services in the country.

It is expected that budgetary allocations to health sector would improve health outcome
 6

and reduce all kinds of mortality rate. Ichoku, and Fonta, (2006) observed that increased

budgetary allocation to health has assisted some heavily-indebted poor countries to fight poverty,

and raise the living standard of people in these countries. Remarkably, the federal budgetary

component of health expenditure has increased over the years. It increased from 1.7% in 1991 to

7.2% in 2007(WHO, 2009; NHS, 2011). Nevertheless, the budgetary allocation for health is still

below the 15% signed by the Nigerian government in the Abuja declaration (WHO, 2009). Given

this level of government spending, it will be very difficult to provide the essential health care

services, and with the unpredictable change of the oil prices in the world market and low tax

base, health care will always be at the peril of underfunding by the Nigerian government. Low

level of life expectancy is explained by inadequate finances meant for health sector in Nigeria.

This is blamed on uneven distribution of finance and facilities, especially in the primary health

care. On the other hand, despite the budgetary provision for health, many of the health

institutions still lack adequate personnel and facilities to provide quality care for the citizenry.

There is gross inadequacy in the number of these facilities, and the few available are unevenly

distributed.

The allocation to education sector is not different from that of health. It is pertinent to note also

that the budgetary allocation to the education sector reduced to 8.7 and 7 per cent in 2000 and

2001 respectively and 8.5 in 2002 (Akpan, 2009). Education expenditure as a ratio of total

government expenditure between 1975 and 2007 averages 6.97% and varies from 2.22% to

14.30%. This fell below the minimum standard of 26% of annual budget prescribed by the

United Nations Scientific and Cultural Organization. The emerging trend shows that education

expenditure as a ratio of GDP follows the same trend. It ranges from 0.39% to 7.86% with a

mean of 1.62% (Dauda, 2011). It is shown from the analysis that the Nigerian government needs
 7

to commit more funds to education sector if the country wants to develop skilled manpower that

would make enormous contribution to growth and development. The benefit of improved

funding on education and health cannot be overemphasized.

However, there is strong evidence that public spending affects school enrolment positively.

Unfavourable initial conditions, such as high illiteracy rates reduce the effectiveness of social

spending. Furthermore, there is a significant non-linear negative relationship between public

spending and mortality rates, with the elasticity of spending being higher for a sub-sample of

low-income countries (Baldacci et al, 2003). In addition, the effect of initial enrolment rates

becomes stronger and income elasticity tends to be lower in poorer countries. Factors such as

corruption and fiscal decentralization- could have a direct impact on the link between public

social spending and outcomes. Empirically, governance is important in ascertaining the efficacy

of public spending. In particular, a percent point increase in the share of public health spending

in GDP lowers the under-5 mortality rate by 0.32% in countries with good governance (as

measured by a corruption index),0.20% in countries with average governance, and has no impact

in countries with weak governance. Similarly, a 1% point increase in the share of public

education spending in GDP lowers the primary education failure by 0.70% in countries with

good governance, and has no discernible impact in countries with weaker governance (Rajkumar

and Swaroop, 2008). These findings provide one possible explanation that public spending often

does not yield the expected improvement in human capital development. The reality is that

public spending, governance and development outcomes are interlinked.

Nigeria’s Human Development Index for 2017 was 0.532—which put the country in the

low human development category – positioning it at 157 out of 189 countries and territories.

Between 2005 and 2007, Nigeria’s HDI value increased from 0.465 to 0.532, and increasing of
 8

14.4 percent. According to a new report by The World Poverty Clock in 2010s, Nigeria has

overtaken India as the country with the most extreme poor people in the world. 46.7 %

representing 86.9 Million Nigerians are living in extreme poverty out of the estimated population

of 180 million. The sum of those in poverty trap in Nigeria has continued to increase same as the

unemployment rates. Sadly, the poverty incidence in Nigeria in 1980 was 28% and

unemployment rate in same year was 6.4%; but both have jumped respectively to 64% and 25%

by the end of 2016 despite the observed increase in public expenditures over these periods. Other

depressing statistics on Nigeria showed that Human Development Index ranking for 2016-2017

at 152 out of 189, inflation rate of 18.6%, and Gini (inequality) index as at 2010 was 48.83,

while average life expectancy dropped from 53.05 years in 2015 to around 51 years in 2017

(Okorie and Anowor 2017). With this sad report, the impact of government expenditure on

human capital development in order to promote economic growth remains questionable. More

so, the provision of infrastructural facilities especially good roads and steady power supply,

security, equipped and functional hospitals, and others have continued to seem unachievable in

Nigeria despite the yearly incremental budgetary allocation on capital expenditure.

Public spending on social service such as education and health care that are critical to human

capital development is generally low in Nigeria. The country’s budgetary allocation to education

is still a far cry from the United Nation Education, Scientific and Cultural Organization

(UNESCO) 2011 recommendation of 26% of the national budget which is to be spent on

education by member countries. The outcome of the low spending on education is the continued

decline in educational opportunities and standard in the country. A large percentage of Nigeria’s

population estimated to be 182.2 Million according to World Bank, (2016) remain at rather low

levels of literacy and often with insufficient access to education and health care.
 9

Budgetary allocation to health as a proportion of the national budget fluctuated between 2.70%

and 7.00% from 1999 to 2010 (Federal Ministry of Finance, 2010). The country’s health sector

was ranked 191 among 201 countries surveyed by the World Health Organization (WHO) in

2010. However, it is obvious that only a healthy population can be fully productive as health care

is not only health producing but also wealth producing. Pulse.org (2018) opined that that there

are deficiencies in the education system in Nigeria. This ranges from inadequate infrastructure,

to old fashioned teaching methods, and a high level of students leaving school without having

mastered required knowledge with inadequate funding from the government. One major reason

for this according to Pulse.com (2018) is that of unskilled workers, which makes it difficult for

the region to get the most positives out of education by creating a significant communication gap

between the persons being impacted and the persons impacting the knowledge.

This study intends to assess impact of government expenditure on education and health on

economic growth in Nigeria, starting from the period of 1981-2017.

1.3 Objectives of the study

The broad objective of this research is to evaluate the impact of public sector spending on

economic growth in Nigeria. The specific objectives are:

(i) To investigate the impact of government expenditure on educational sector on

economic growth in Nigeria

(ii) To examine the impact of government expenditure on health sector on economic

growth in Nigeria.

(iii) To ascertain the causality relationship among government expenditure on education,

government expenditure on health and economic growth in Nigeria.

 10

1.4 Research Questions

This study shall examine and address the following research questions:

(i) What is the impact of government expenditure on education on economic growth in

Nigeria?

(ii) What is the impact of government expenditure on health on economic growth in

Nigeria?

(iii) What is the causality relationship among government expenditure on education,

government expenditure on health and economic growth in Nigeria?

1.5 Research Hypotheses

In this study, the hypotheses below shall be tested:-

(i) Ho1: Government expenditure on education has no significant impact on economic

growth in Nigeria.

(ii) Ho2: Government expenditure on health has no significant impact on economic

growth in Nigeria.

(iii) Ho3: There is no significant causality relationship among government expenditure on

education, government expenditure on health and economic growth in Nigeria.

1.6. Scope of the Study

This study is carried out to examine the impact of government expenditure on education and

health sectors on economic growth in Nigeria spanning from 1981-2017. The scope covered a

period of 36 years with the hope that the years of coverage will effectively help to achieve the

stated objectives of the study.

 11

1.7 Significance of the Study

This study will augment the existing literature on the examination of the impact of government

expenditure on economic growth in Nigeria. Apart from adding to the numerous empirical

evidences from Nigeria, this study will also add to the available literature on the areas of study

thereby providing a platform for other researchers who may want to further the study.

Furthermore, it will reveal the level of human capital investment in Nigeria, both in terms of the

government financial outlays on education and health.

 12

CHAPTER TWO

LITERATURE REVIEW

Introduction

In this chapter, we shall be reviewing some of the relevant literature relating to the subject

matter. That is, the review will start with a brief discussion on government spending and we shall

examine the various aspect of it. We shall also discuss on public or government spending and it

impact on economic growth in Nigeria. According to Madueme (2011), conceptual framework of

literature review is an articulation and definition of key concepts of the study as they suit your

work. Therefore, we proceed as follows;

2.1 Conceptual Framework

2.1.1 Concept of public sector spending

Public spending or government spending is expenditure incurred by the “public sector” in the

course of its activities. It is the value of goods and services bought by the state and its agencies.

That is, the aggregate sum of all public sector expenditure. In democracy, public expenditure is

an expression of people’s will, managed through political parties and institutions. At the same

time, public expenditure is characterized by a high degree of inertia and law dependency, which

tempers the will of the current majority.

Public spending can be financed through taxes, public debt and international aid. Until the 19th

century, public expenditure was limited as laissez faire philosophers believed that money left in

private hands could bring better returns. In 17th and 18th centuries, public spending was

considered as a wastage of money. Public spending enables governments to produce and

purchase goods and services, in order to fulfill their objectives such as the provision of public

goods or the redistribution of resources. Since 1980, the growth of government expenditure has
 13

been slowing down in early industrialized countries- and in some cases, it has gone down in

relative terms. However, in spite of differences in levels, in all these countries public spending as

a share of GDP is higher today than before the 2nd world war.

Although the increase in public spending has not been equal in all countries, it is still remarkable

that growth has been a general phenomenon, despite large underlying institutional differences. In

the second period, between 1915-1945, public spending was generally volatile, particularly for

countries that were more heavily involved in the first and second world wars. In organization

and economic terms, the public sector is the sum of those part of the economy formally under the

control of or responsible to the state, including both central and local government.

Causes of the increase in Public Expenditure

One of the most vital features of this era is the remarkable growth of public expenditure. Some of

the significant reasons for the growth of public expenditure are:

(i) Welfare State: Modern states are no more like police states .That is, a government that

exercises power arbitrarily through the power of the police force. They have to look on the

welfare of the masses for which the state has to perform a number of functions. They have to

create job opportunities and other welfare activities. All these require huge expenditure.

(ii) Defense Expenditure: Modern warfare is very expensive. Wars and possibilities of wars have

forced nations to always equipped with arms which require large amount of public expenditure.

(iii) Growth of Democracy: The present form of democratic government is highly expensive. The

conduct of elections, maintenance of democratic institutions like legislatures etc. cause huge

expenditure.
 14

(iv) Growth of Population: High growth of population requires huge spending on the part of the

government. For meeting the needs of the growing population more educational institutions, food

materials, hospitals and other amenities have to be provided.

(v) Rise in Price Level: Rises in prices have considerably enhanced public expenditure in recent

years. Higher prices mean higher spending on items like payment of salaries, purchase of goods

and services and so on the part of the government.

(vi) Development Expenditure: Implementing developmental programs like five-year plans,

modern governments are incurring huge expenditure.

(vii) Public Debt: Along with debt rises the problem like payment of interest and repayment of

the principal amount. This results in an increase in public expenditure.

(viii) Poverty alleviation programs: As poverty ratio is high, huge amount of expenditure is

required for implementing alleviation programmes.

Classification of Government Expenditure

Public expenditure can be classified into (i) Revenue or recurrent expenditure and (ii) Capital

expenditure.

Revenue expenditure is current expenditure. It includes administrative expenditure and

maintenance expenditure. This expenditure is a recurring type. The recurrent expenditures are the

expenses made by government in her purchase of current general goods such as services. These

include the purchase of everyday goods such as materials, equipment (for recurrent

consumption), the payment for rent, and such similar goods which entail running costs. They

also include payment of salaries, and wages and other types of emoluments to government

employees. Capital expenditure is of capital nature and is incurred once for all. It is non-

recurring expenditure. Capital expenditures are expenses incurred by the government for the
 15

purpose of increasing future consumption and production. They can be regarded as expenses

made on ―capital goods‖ as distinct from ―consumption goods‖ we are aware however that

sometimes it is not easy to draw a line between these two types of expenditure when the

expenses are made on certain durable goods. Example of capital expenditure include building

multipurpose projects or on setting up big factories like steel plants, money spent on land,

machinery and equipment.

Revenue Budget or Revenue Account is related to current financial transactions of the

government which are of recurring in nature. Revenue Budget consists of the revenue receipts of

the government and the expenditure is met from these revenues. Revenue Account deals with

taxes, duties, fees, fines and penalties, revenue from government estates, receipts from

government commercial concerns and other miscellaneous items, and the expenditure there from.

Revenue expenditure includes interest-payments, defense expenditure, major subsidies, pensions

etc. The Capital Account is related to the acquisition and disposal of capital assets. Capital

budget is a statement of estimated capital receipts and payments of the government over fiscal

year. It consists of capital receipts and capital expenditure. The capital account deals with

expenditure usually met from borrowed funds with the object of increasing concrete assets of a

material character or of reducing recurring liabilities such as construction of buildings, irrigation

projects etc. Capital receipts include borrowings, recovery of loans and advances, disinvestments

and small savings. Capital expenditure includes developmental Outlay, Non-developmental

outlay, Loans and advances and discharge of debts.

In the Keynesian school of thought, increase in government expenditure has an expansionary

effect on income and employment through the multiplier effects on aggregate demand. On the

other side, government expenditure crowds out private investment as a result of increase in the
 16

rate of interest and this slows down economic growth and reduces the rate of capital

accumulation in the long run. Keynes; 1936 regarded government expenditure as an exogenous

variable that contributes positively to economic growth. Hence, an increase in government

expenditure would likely lead to increase in employment, profitability and output through the

multiplier effects on aggregate demand. With the introduction of government expenditure (G) by

Keynes, the national income determination model is expanded which becomes;

AD=C+I+G

Where, AD represents aggregate demand which equals the sum of consumption (C), Investment

(I), and government expenditure. The government expenditure has direct and positive impact on

the GDP. An increase in government expenditure will boost aggregate demand, resulting in

higher level of national income. All things being equal, an increase in government spending has

an expansionary effect on output and income while a decrease has contractionary effect on

output and income.

The neoclassical growth models argued that government fiscal policy does not have positive

effect on the growth of an economy. On the contrary a significant number of scholars have

agreed that fiscal policy is a potent tool in promoting growth and improving failures arising from

the inefficiencies of the market. Hence, government fiscal policy could be a vital tool of

militating against failure arising from market inefficiencies (Abu: 2010). Economic theory has

shown how government spending may either be beneficial or detrimental to economic growth. In

traditional Keynesian macroeconomics, many kinds of public expenditures, can contribute

positively to economic growth through multiplier effects on aggregate demand. On the other

hand, government consumption may crowd out private investment, dampen economic stimulus

in the short run and reduce capital accumulation in the long run. Studies based on endogenous
 17

growth models distinguish between distortionary or non-distortionary taxation and productive or

unproductive expenditure Expenditures are categorized as productive if they are included as

arguments in private production functions and unproductive if they are not (Barro and Sala-I-

Martin,1992). The determinant of government spending are important factors that are relevant

for managing fiscal imbalance in developing countries, Nigeria inclusive. This becomes more

pungent when development challenges such as poor infrastructure, high level of unemployment,

insecurity of life and properties are blooming. These development challenges persist in Nigeria,

despite the huge government expenditure that are budgeted annually to solve them. Base on this,

diverse fiscal policies measures are been adopted by the Nigerian government with the aim of

managing public spending or government expenditure. some of these policies include reducing

total expenditures, increasing taxes in the society as well as adopting a fashionable approach of

Central Bank financing, which Udoh (2009) has referred to as the devil’s alternative.

2.1.2 Concept of Economic Growth

Economic growth is the sustainable increase in the total amount of the goods and services

(output) produced in an economy over time. Most times, economic growth is used as a means of

knowing how well a country is doing because more output means more trade, more revenue and

more consumption. It is an indication of how big an economy is growing, but this does not show

how better it is getting. Economic growth is seen as sustained annual increases in an economy’s

real national income over a long period of time. In other words, economic growth products are at

constant prices. Some economists have been able to criticize this definition thereby seeing it as

inadequate and unsatisfactory. They argue that total national income may be increasing and yet

the standard of living of the people may be falling. This can happen when the increase in

population is faster than the increase in total national income. However, economic growth can
 18

also be defined in terms of per capital income. This form of definition is seen as a better way of

defining economic growth. Here economic growth means the annual increase in real per capita

income of a country over a long period of time. Since the main aim of economic growth is to

raise the standard of living of people this definition runs in terms of per capita income or output.

Professor Arthur Lewis also says that economic growth means the growth of output per- capital.

He also pointed out that the definition of economic growth as an increase in per capita income or

output, must be a "sustained increase" if it is to be called economic growth. By sustained

increase in per capita income we mean the upward or rising trend in per capita income over a

long period of time. A short period rise in per capita income like a business cycle cannot be

regarded as economic growth.

Schumpeter (1946) refers Economic Growth as a gradual and steady change in the long-run

which is brought about by a gradual increase in the rate of savings and population. Jhinghan

(2003) regards it as the quantitative sustained increase in the country’s per capita output or

income accompanied by expansion in its labor force, consumption, capital and volume of trade.

Kindleberger (1965) on the other hand, sees economic growth as increase in the level of output

without a change in institutional and technological arrangement. Samuelson (2006) sees

economic growth as the expansion of a country’s potential GDP or national output. He explains

it further as when a nation’s productivity frontier shifts outwards.

Economic growth according to Todaro and Smith (2006), is the steady process by which the

productive capacity of the economy is increased over time to bring about rising levels of national

output and income. Economic growth therefore occurs whenever people take resources and

efficiently rearrange them in ways that make them more productive overtime. It is the continuous
 19

improvement in the capacity to satisfy the demand for goods and services, resulting from

increased production scale, and improved productivity i.e. innovations in products and processes.

From the above definitions we can infer that economic growth is the process which leads to

sustained increase in the national output over a period of time.

2.2 Theoretical Literature

It will be very necessary for the purpose of understanding the impact of government expenditure

on education and health on economic growth in Nigeria, to first understand the theoretical

underpinning

2.2.1 Theories of Economic Growth 

Different models of economic growth stress alternative causes of economic growth. The

principal theories of economic growth include:

2.2.1.1 Classical Model of Economic Growth

Adam Smith and Ricardo both were the classical economists. They had much more similarities

in their models of growth. But now a days, there is a customary to present a full fledge classical

model which is composed of the ideas given by Smith (1776), Ricardo (1817), J.S. Mill (1848)

and Malthus (1798) etc., regarding economic growth.

The classical model has following features: According to classical economists if the amount of

labor is assumed to be a specific one which is used to produce certain level of output, the labor

will be given the 'subsistence wages'. The amount of surplus which is earned by the capitalists

will be utilized in capital accumulation. The increase in capital accumulation will increase the

demand for labor. The wages will increase if the population of the country remains fixed. As

wages exceed the subsistence wages the population will increase, following Malthus theory of

population. Because of increase in population the manpower will increase leading to decrease the
 20

wages. In this way, they will come back to subsistence wages and producers will be able to reap

'Surplus'. The 'Surplus' earned by the capitalists will be re-ploughed by them leading to increase

the demand for labor and the same process will take place which we have mentioned above. This

dynamic process will come to an end when 'diminishing return' applies in production. Here the

total output produced by the economy gets equalized the wages given over to the labor. In this

way, the producers will not be earning any surplus. With this situation, there will be no capital

accumulation, no increase in production and no increase in population. However, the classical

model has some limitations: This model ignored the role which technical progress could play. It

is the technical progress which can minimize the role of diminishing returns. According to 'Iron

Law of Wages' the wages cannot exceed as well as go below the subsistence level. But, because

of changes in industrial structure and economic development the iron law of wages cannot be

accorded as the law of wage determination. In developing economies, there is a big shortage of

capital. In addition to capital accumulation, the economic development is also influenced by the

culture, civilization, traditions and institutional setup of the people. Such all has not been

examined in classical model.

2.2.1.2 Neoclassical growth theory

Neoclassical growth theory seeks to understand the determinant of long-term economic growth

through accumulation of factor inputs such as physical capital and labour. It is an economic

theory that outlines how a steady economic growth rate results from a combination of three

driving force: labour, capital and technology. Studies revealed a significant contribution from

technical progress, which is defined as an exogenous factor. Solow (1957) and Swan (1956) are

among those who first demonstrated this. They are the first to introduce the neoclassical growth

theory in 1956. Neoclassical Model is on aggregate production function which exhibit constant
 21

return to scale in labour and reproducible capital. Y =f (K, L) Solow (1975) modified the above

model by supposing there is a productivity (or technology) parameter A in the aggregate

production function that reflects the current state of technological knowledge. Y = f (ᾹKL) An

obvious limitation of the Solow-Swan Model is its failure in accounting for the cause of

technological progress. The model shows that technological progress contributes to economic

growth but it does not spell out how it takes place (The rate is set exogenously). The justification

of Slow (1957) was that technological change originated from knowledge produced by public

science base (e.g. investigating a public research institutes) which is outside the domain of

economic system.

2.2.1.3 Endogenous Growth Theory

The endogenous growth is a theory that was developed as a reaction to omissions and

deficiencies in the Solow-Swan neoclassical growth model. It is a new theory which explains the

long run growth rate of an economy on the basis of endogenous factors as against exogenous

factors of the neoclassical growth model. Endogenous growth theory, according to Temple

(2009) has stimulated economists’ interest in the empirical evidence available from cross country

comparisons, bearing on the main level relationship between human capital development and

economic growth. Temple describes physical capital accumulation as sufficient to determine the

dynamic evolution of output. To specify the growth path when human capital is included, it is

necessary to consider an additional sector where the growth of human capital has taken place.

Given that physical capital is characterized by diminishing returns, the required assumption for

the model to exhibit a positive growth rate of output per worker in the steady state is that the

technology for generating human capital has constant returns; meaning that the growth of human

capital is assumed to be the same for a given effort, whatever the level of human capital attained.
 22

With the assumption, the rate of output growth (per worker) is positive and increasing in the

productivity of education or on the job training in the creation of human capital.

The endogenous growth economist stress the need for government and private sector institutions

to encourage innovation, by creating the right economic environment for individuals and

businesses thrive on innovations. The main points of the endogenous growth theory are;

Technological progress should not be taken as a constant in growth model. Government policies

can raise a country’s growth rate by encouraging competition in the markets and helping to

stimulate product and process innovation. Protection of private property rights and patents, as a

means of incentives to encourage businesses and entrepreneurs engage in research and

development. Thus, Investment in human capital is an essential ingredient for a long-term

growth, government policy should encourage entrepreneurship. It maintains that economic

growth is primarily the result of endogenous and not exogenous factors i.e. investment in human

capital, innovation, and knowledge are significant contributors to economic growth.

2.2.2 Theories of Growth of Public Expenditure

The three important theories of the growth of public expenditure are:

2.2.2.1 Adolph Wagner’s Hypothesis

Adolph Wagner (1835-1917) held that there is a cause-effect relationship between economic

growth and public expenditure. His hypothesis of ‗Law of Increasing State Activity‘ state that as

per capita income and output increase in industrialized counties, the public expenditure of those

counties necessarily grows as a proportion to total economic activity. He explained that

‗comprehensive comparisons of different countries and different times shows that among

progressive people, with which alone we are concerned, an increase regularly takes place in the

activity of both central and local governments. The increase is both extensive and intensive. The
 23

central and local governments constantly undertake new functions, while they perform both old

and new functions more effectively and completely. ‘He explained the trend of public

expenditure as follows:

a) As the national income increases, the percentage of outlay for government supplied goods is

greater.

b) Increased public expenditure was the natural result of economic growth and continued

pressure for social progress.

2.2.2.2Peacock - Wiseman Hypothesis

According to Peacock and Wiseman, public expenditure does not increase in a smooth and

continuous manner. The increasing public expenditure over time has occurred in a step-like

manner. They studied the experience of the United Kingdom for a secular period (1890-1955).

Instead of studying the trend of public expenditure, they studied the fluctuations in government

expenditure over time. The general approach to the hypothesis refers to the three related concepts

vis: displacement effect, inspection effect and concentration effect.

The movement from older level of expenditure and taxation to a new and higher level is called

the displacement effect. War and other social disturbances force the people and governments to

find solutions of important problems, which had been neglected earlier. This is called the

inspection effect. That is, new obligations imposed on state, in the form of increased debt,

interest and war pensions etc. The concentration effect refers to the apparent tendency for the

central government economic activities to become an increasing proportion of the total public

sector economic activity when the society is experiencing economic growth..

 24

2.3 Empirical Literature

A number of studies have focused on the relation between government expenditure and

economic growth in developed and developing countries like Nigeria. The results varied from

one study to another. For instance, Alexander (1990) applied OLS method for sample of 13

Organization for Economic Cooperation and Development (OECD) countries panel during the

period ranging from 1959 to 1984. The results show, among others, that growth of government

spending has significant negative impact on economic growth.

Gregorious and Ghosh (2007) made use of the heterogeneous panel data to study the impact of

government expenditure on economic growth. Their results suggest that countries with large

government expenditure tend to experience higher economic growth.

Devarajan and Vinay (1993) used panel data for 14 developed countries for a period ranging

from 1970 to 1990 and applied the Ordinary least square method on 5-year moving average.

They took various functional types of expenditure (health, education, transport, etc) as

explanatory variables and found that health, transport and communication have significant

positive effect while education and defense have a negative impact on economic growth.

Using panels of annual and period-averaged data for 22 Organizations for OECD countries

during 1970 to 1995, Bleaney et al (2001) studied the impact of government spending on

economic growth. Applying OLS and GLS methods, they found that productive public

expenditures enhance economic growth, but non-productive public spending does not, in

accordance with the predictions of Barro (1990) model.

Gemmell and Kneller (2001) provide empirical evidence on the impact of fiscal policy on long-

run growth for European economy. Their study required that at least two of the

taxation/expenditure/deficit effects must be examined simultaneously and they employ panel and
 25

time series econometric techniques, including dealing with the endogeneity of fiscal policy.

Their results indicate that while some public investment spending impacts positively on

economic growth, consumption and social security spending have zero or negative growth

effects.

Mitchell (2005) evaluated the impact of government spending on economic performance in

developed countries. He assessed the international evidence, reviewed the latest academic

research, cited examples of countries that have significantly reduced government spending as a

share of national output and analyzed the economic consequences of these reforms. Regardless

of the methodology or model employed, he concluded that a large and growing government is

not conducive to better economic performance. He further argued that reducing the size of

government would lead to higher incomes and improve American’s competitiveness.

Olorunfemi, (2008) studied the direction and strength of the relationship between public

investment and economic growth in Nigeria, using time series data from 1975 to 2004 and

observed that public expenditure impacted positively on economic growth and that there was no

link between gross fixed capital formation and Gross Domestic Product. He averred that from

disaggregated analysis, the result reveal that only 37.1% of government expenditure is devoted to

capital expenditure while 62.9% share is to current expenditure.

Olopade and Olepade (2010) assess how fiscal and monetary policies influence economic growth

and development. The essence of their study was to determine the components of government

expenditure that enhance growth and development, identify those that do not and recommend

those that should be cut or reduce to the barest minimum. The study employs an analytic

framework based on economic models, statistical methods encompassing trends analysis and
 26

simple regression. They find no significant relationship between most of the components of

expenditure and economic growth.

Abu and Abdullah (2010) investigates the relationship between government expenditure and

economic growth in Nigeria from the period ranging from 1970 to 2008.They used disaggregated

analysis in an attempt to unravel the impact of government expenditure on economic growth.

Their results reveal that government total capital expenditure, total recurrent expenditure and

Education have negative effect on economic growth. On the contrary, government expenditure

on transport, communication and health result in an increase in economic growth. They

recommend that government should increase both capital expenditure and recurrent expenditure

including expenditure on education as well as ensure that funds meant for development on these

sectors are properly utilized. They also recommend that government should encourage and

increase the funding of anti-corruption agencies in order to tackle the high level of corruption

found in public offices in Nigeria.

Usman et al (2011) in their paper titled “Public Expenditure and Economic Growth in Nigeria”

employed the Vector Error Correction model. Their Findings indicated the presence of a long run

relationship between public expenditure and economic growth of Nigeria.

Laudau (1983) in a cross sectional study of over 100 countries reported evidence of a negative

relationship between the growth rate of real GDP per capita and share in government

consumption expenditure in GDP. He concluded on an evidence of a negative relationship

between growth rate of real GDP and the growth rate of government share in GDP.

Liu et al (2008) in their paper the Association between Government Expenditure and Economic

Growth: The Granger causality test of U.S data examined the relationship (causal) between GDP

and public expenditure for U.S and came up with an argument that total government expenditure
 27

causes growth of real GDP but on the other hand GDP does not cause expansion of government

expenditure.

Devarjan and Vinaya (1993) assessed the link between the level of public expenditure and

growth, they derived conditions under which a change in the composition of expenditure leads to

a higher steady-state growth rate of the economy.

Erkin (1988) examined the relationship between government expenditure and economic growth,

by proposing a new framework for New Zealand. The empirical results showed that higher

government expenditure does not hurt consumption, but instead raises private investment that in

turn accelerates economic growth.

Mitchell (2005) argued that the American government expenditure has grown too much in the

last couple of years and has contributed to the negative growth. The author suggested that

government should cut its spending, particularly on projects/programmes that generate least

benefits or impose highest costs.

Komain and Brahmasrene (2007) employed the Granger causality test to examine the

relationship between government expenditure and economic growth in Thailand and found out

that government expenditure and economic growth are not co-integrated. The result also

suggested a unidirectional relationship, as causality runs from government expenditure to

economic growth. However, the result indicated a significant positive effect of government

spending on economic growth.

A study carried out by (Okoro, 2013) empirically examined the impact of government

expenditure on economic growth for the period (1980-2011) using cointegration and error

correction test and found out that there exist a long run equilibrium between government

spending and economic growth. Also, in a similar research estimating the impact of government
 28

expenditure on economic growth for the period (1961-2010), the research used causality test and

cointegration method and found out that governmental capital expenditure translates to higher

economic growth and any reduction in capital expenditure would have a negative consequences

on economic growth (Nasiru, 2012).

Foster and Skinner (1992) studied the relationship between government expenditure and

economic growth for a sample of wealthy countries for 1970-95 periods, using various

econometric approaches. They submitted that more meaningful (robust) results are generated, as

econometric problems are addressed.

Abu-Bader and Abu-Qarn (2003) employed multivariate co-integration and variance

decomposition approach to examine the causal relationship between government expenditures

and economic growth for Egypt, Israel, and Syria. In the bivariate framework, the authors

observed a bi-directional (feedback) and long run negativez relationships between government

spending and economic growth. Moreover, the causalitytest within the trivariate framework (that

include share of government civilian expenditures in GDP, military burden, and economic

growth) illustrated that military burden has a negative impact on economic growth in all the

countries. Furthermore, civilian government expenditures have positive effect on economic

growth for both Israel and Egypt.

Loizides and Vamvoukas (2005) employed the trivariate causality test to examine the

relationship between government expenditure and economic growth, using data set on Greece,

United Kingdom and Ireland. The authors found that government size granger causes

economic growth in all the countries they studied. The finding was true for Ireland and the

United Kingdom both in the long run and short run. The results also indicated that economic
 29

growth granger causes public expenditure for Greece and United Kingdom, when inflation is

included.

Komain and Brahmasrene (2007) examined the association between government expenditures

and economic growth in Thailand, by employing the Granger Causality Test. The results

revealed that government expenditures and economic growth are not cointegrated. Moreover, the

results indicated a unidirectional relationship, as causality runs from government expenditures to

growth. Lastly, the results illustrated a significant positive effect of government spending on

economic growth.

Olugbenga and Owoye (2007) investigated the relationships between government expenditure

and economic growth for a group of 30 OECD countries during the period 1970-2005. The

regression results showed the existence of a long-run relationship between government

expenditure and economic growth. In addition, the authors observed a unidirectional

causalityfrom government expenditure to growth for 16 out of the countries, thus supporting the

Keynesian hypothesis. However, causality runs from economic growth to government

expenditure in 10 out of the countries, confirming the Wagner’s law. Finally, the authors found

the existence of feedback relationship between government expenditure and economic growth

for a group of four countries.

 30

CHAPTER THREE

METHODOLOGY

Introduction

This chapter addresses research design of the work, data analysis techniques, model

specification, a priori expectation, pre and post estimation tests as well as sources of data to

employ.

3.1 Research Design

The research design adopted for this study is the Ex Post Facto research design. The ex post facto

design was used because the study is a quasi-experimental study examining how independent

variables affect a dependent variable. The ordinary least square technique was employed in

obtaining the numerical estimates of the coefficient parameters, the OLS is chosen because of its

BLUE (best linear unbiased estimator) properties, according to (Gujarati 2009) OLS method

have some very attractive statistical properties that have made it one of the 'best and most

powerful method of regression. It is intuitively appealing and mathematically much simpler than

any other econometric techniques. E-View 9 econometric software package is employed in this

analysis to test non violation of the basic assumptions of the OLS model.

3.2 Data Analysis Techniques

This work adopts an annual time series data on gross domestic product, total government

expenditure on education, total government expenditure on health, and makes use of ordinary

least square techniques (OLS) to carry out the analysis. The OLS method is chosen because it

possesses some optimal properties: its computational procedure is fairly simple and it is also an

essential component of most other estimation techniques. Secondly, this technique has been

adopted by many other researchers and has yielded optimal results. Third, the OLS technique
 31

possesses the feature of simplicity as it is not complex in computation. Finally, the data

requirement of this technique is not excessive as compared with other techniques and methods. E

view 9 software package is used in this analysis to test non violation of the basic assumption of

the OLS model.

3.3 Model Specification

The functional form of the model is denoted as:
RGDP = f( TGEH, TGEE,FDI) (31)
Mathematical form of the model:

RGDPt =β0 + β 1 TGEH t + β 2 TGEE t + β 3 FDI t (32)

Econometric specification of the model:

RGDPt =β0 + β 1 TGEH t + β 2 TGEE t + β 3 FDI t + μ t (3.3)

Error correction model to establish short-run dynamics is specified thus:

∆ RGDPt =β 0+ β1 ∆ TGEH t + β2 ∆ TGEE t + β 3 ∆ FDI t +∆ ECM (−1 ) + μt

Where

RGDP = Real gross domestic product (proxy for economic growth)

TGEH = Total government expenditure on health

TGEE = Total government expenditure on education

FDI = Foreign Direct Investment

μ1 t = Stochastic Error term

β0…..β5 = Parameters
 32

3.4 A Priori Expectation

The economic a priori expectation test evaluates the parameters whether they meet standard
economic theory, this include the sign and sizes.

Table 1 A priori expectation

PARAMETER VARIABLES EXPECTED

S SIGNS
β0 CONSTANT +
β1 TGEH +
β2 TGEE +
β3 FDI +

3.4.1 Statistical Test of Significance

These are determined by the statistical theory and aimed at evaluating the statistical reliability of

the estimates of the parameters of the model, the most widely used statistical criteria is the

square of correlation coefficient (coefficient of determination R 2), T-Test and F-Test

significance.

3.4.1.1 Test for Goodness of Fit

The Coefficient of deternination is used to measure the goodness of fit of a regression equation.

It gives the proportion or amount of total variations in the regressand explained by all the

explanatory variables jointly (Gujarati et.al. 2012). R2 is overall measure of how the chosen

model fits a given set of data. It can be divided in to the adjusted and unadjusted. The adjusted

will be more important to us since it adjusts for the degrees of freedom associated with the sum

of squares entering into the model.

3.4.1.2 T-Test of significance

 33

This is used to test for the significance of the individual parameters used in the model. If the

value of the t - statistic exceeds the t- critical, we reject the null hypothesis that the variable is

statistically insignificant at the 5% chosen level of significance. Otherwise, we do not reject and

conclude that the variable is statistically significant.

3.4.1.3 F-Test of significance

This is used to determine the joint significance of the variables used in the model. If the F-

statistic exceeds the F-critical value, we reject the null hypothesis that the variables are jointly

insignificant at the 5% chosen level of significance. Otherwise, we do not reject the null. Again

the probability value of the F-statistic may also be used in reaching the same conclusion. If the

probability value is < 0.05, we reject the null and conclude that the variables of the model are

jointly significant.

3.5 Econometric Test (Econometric criteria)

3.5.1 Pre-Estimation Test:

Some pre-estimation tests will be carried out to ensure that a valid result will be obtained. This

will be done to test the time series properties of the data intended to be used for the estimations.

This is because time series data often lead to spurious or nonsense result if the problem of

stationarity is not properly addressed. Again, it will also be wise to check the long run

relationship among the time series variables used before preceeding to proper estimations.

3.5.1.1 Stationarity Test

It is often believed in econometrics that most macroeconomic time series are not usually

stationary at level i.e. they are often not integrated of order zero (0). Consequently, this study

will subject the variables of interest to stationarity test or unit root test adopting the Augmented
 34

Dickey- Fuller (ADF) test. According to Gujarati et. al. (2012), this test involves the estimation

of the regression:
m
∑
ΔYt= β 1 + β 2 + δYt-1+ i =1 αiΔYt-i + εt

Where:

Y is a time series, t is a linear time trend, Δ is the first difference operator, β s are parameters, n is

the optimum number of lags in the dependent variable and εt is a pure white noise error term.

If ADF statistic > ADF critical, we reject the Null hypothesis that the variable is non-stationary

at the chosen level of significance, but if otherwise, we do not reject the null and conclude that

the variable is stationary.

3.5.1.2. Co-integration Test:

The co-integration test will be conducted to test whether there is a long-run equilibrium

relationship among the variables in the model. The Augmented Engel and Granger 2-step

approach due to Engel and Granger (1987) will be employed to test for co-integration among

the variables in the model. This entails generating the residual from the multiple linear

regression model and then performing stationarity test on it. As this test demands, the residual

must be stationary at level for co-integration to exist.

The equation for the Augmented Engel and Granger (AEG) co-integration test is specified as:
n
∑
Δμt= δμt-1+ αi i=1 Δμ t-i +εt

Where μt = the generated residual series

εt = pure white noise error.

 35

3.5.1.3 Error Correction Mechanism (ECM).

The error correction mechanism (ECM) which was first used by Sargan and later popularized by

Engel and Granger corrects for disequilibrium (Gujarati 2009). This test is adopted to ascertain

the speed of adjustment to equilibrium when there is any short run distortion or disequilibrium

among co-integrated variables. That is to say that this test can be used to correct disequilibrium if

the variables are co-integrated. The coefficient of the error term lag (1) which is the ECM shows

the speed at which the dependent variable adjust to equilibrium in the

short run, if significant and negative.

3.5.2.1 Post Estimation Test

3.5.2.2 Autocorrelation Test

This is used to test whether the error terms corresponding to different observations are

uncorrelated. The Durbin Watson d-Static will be used. It is based on the assumption that the

model includes the intercept term and that the explanatory variables are non – stochastic. The

Durbin Watson values usually range from 0 to 4. The Durbin Watson d distribution table is used

to verify the exact value of the Durbin Watson tabulated.

3.5.2.2 Normality Test

This is used to test whether the error term is normally distributed. The normality test adopted in

this work is that of Jarque-Bera (JB) statistic which follows the Chi-square distribution. If JB

statistic < JB critical value we do not reject the null hypothesis that the error term is normally

distributed at the chosen level of significance, but if otherwise, we reject. We can as well use its

probability value to judge the result.

 36

3.5.2.3 Heteroskedasticity Test.

One of the assumptions of the random variable U t is that its probability distribution should be

constant over all observations of Xi, that is, the variance of each disturbance term is the same for

all values of the explanatory variables. The aim of this test is to see whether the error variance of

each observation is constant or not. Non-constant variance can cause estimated model to yield a

biased result. White’s general heteroscedasticity test would be adopted for this purpose (Gujarati

et.al. 2012).

3.5.2.4 Granger Causality Test

Since it is established that there is a long run relationship among the variables in the model, we

proceed to conduct a causality test aimed at establishing the direction of causality among the

variables of interest. This test is undertaken to investigate whether there is a degree of causation

of one variable on the other. With this test, we would be able to see causality linkages among

total government expenditure on education, total government expenditure on health, primary

school enrollment, secondary school enrollment, life expectancy rate and real gross domestic

product (economic growth) in Nigeria. Does human capital development granger cause economic

growth or vice versa. The essence of causality analysis, using the granger causality test, is to

actually ascertain whether a causal relationship exists between two variables of interest.

i. H0: TGEE does not Granger cause RGDP

ii. H0: RGDP does not Granger cause HCA

The rule of thumb states that the probability of F-statistic must be less than 0.5 to show causal

relationship.

Decision Rule:
 37

The rule of thumb states that the probability of F-statistic must be less than 0.5 to show causal

relationship.

Or if the computed F-value exceeds the critical F-value at the chosen level of significance, we

reject the null hypothesis; otherwise, we do not reject it.

3.5.2.5 Multi-Collinearity Test.

In this study, the test for linear relationship among the variables used in the model would be

performed. This is in line with Assumption of the Classical Linear Regression Model (CLRM) of

“no high or perfect multi-collinearity”. The essence of this is to see if there is high collinearity

among variables or not. The correlation matrix will be used for this test. If the correlation

coefficient between two variables exceeds 0.8, then such variables has high multi- collinearity

test.

3.6 Sources of Data

Annual time series on the variable under study covering the period 1981-2017 are used in this

study for the estimation of the function. The data used for this study are obtained from World

bank development index and Central bank of Nigeria statistical bulletin (2017). The data are

secondary time series data on real gross domestic product (RGDP), total government expenditure

on health(TGEH), total government expenditure on education(TGEE), and Foreign Direct

Investment ranging from 1981-2017.

3.7 Econometric Software Package

The Econometric software package used is E-views 9 because the software is easy to handle and

it helps to bring out the best regression result.

 38

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.0 Introduction

This chapter presents the regression results and interprets the various economic, statistical and

econometric tests in study. The hypotheses posed in the work are also examined based on the

empirical results.

4.1 Presentation and Analyses of Data

4.1.1 Unit Root Test Result

The result of the Augmented Dickey-Fuller (ADF) Unit Root Test to check the stationarity of the

variables in the model is presented in table 4.1 below. The result showed that all the variables are

stationary at first difference.

Table 4.1: Result of Unit Root Test

Augmented Dickey Fuller Unit Root Test

Variables t-statistic ADF Test Order of Test Result

5% Level Statistic Integration

TGEE -2.948404 - 4.973372 I(1) Stationary at 1st difference

TGEH - 2.948404 - 5.292049 I(1) Stationary at 1st difference

FDI - 2.948404 - 4.622040 I(1) Stationary at 1st difference

The test was conducted on the basis of the following hypothesis:

HO: variable contains unit root and therefore is non-stationary.

H1: variable does not contain unit root and hence is stationary.

Since all the variables are not stationary at level, a co integration test was conducted to find out if

the variables have a long run relationship, that is, whether or not the variables are co integrated.
 39

4.1.2 Co-integration Test Result

Table 4.2 Engle-Granger Cointegration

Null Hypothesis: ECM has a unit root

Exogenous: Constant
Lag Length: 0 (Automatic - based on SIC, maxlag=9)

t-Statistic   Prob.*

Augmented Dickey-Fuller test statistic -3.833237  0.0060

Test critical values: 1% level -3.632900
5% level -2.948404
10% level -2.612874

*MacKinnon (1996) one-sided p-values.

Augmented Dickey-Fuller Test Equation

Dependent Variable: D(ECM)
Method: Least Squares
Date: 11/20/20 Time: 22:45
Sample (adjusted): 1983 2017
Included observations: 35 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

ECM(-1) -0.607819 0.158565 -3.833237 0.0005

C 0.001508 0.006843 0.220340 0.8270

R-squared 0.308085    Mean dependent var 0.001978

Adjusted R-squared 0.287118    S.D. dependent var 0.047940
S.E. of regression 0.040477    Akaike info criterion -3.520730
Sum squared resid 0.054066    Schwarz criterion -3.431853
Log likelihood 63.61278    Hannan-Quinn criter. -3.490050
F-statistic 14.69371    Durbin-Watson stat 1.907251
Prob(F-statistic) 0.000539

Source: Regression Output Appendix II

The co-integration test result above showes that co-integration exists among the variables in the

model as absolute value of the ADF test statistic (-3.833237) is greater than the 5% critical value

(2.948404), with probability value of 0.0060. This implies that there is co-integration

relationship among the variables in the model. That is, there is a long run relationship among the

variables in the model.

 40

4.2 Presentation and Interpretation of Result

4.2.1 Error Correction Model Result

The result of error correction model for short run dynamics is presented in table 4.3 below.

Dependent Variable: D(RGDP)

Method: Least Squares
Date: 11/22/20 Time: 11:54
Sample (adjusted): 1982 2017
Included observations: 36 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

C 0.012484 0.007629 1.636348 0.1119

D(TGEE) 0.169404 0.029828 5.679337 0.0000
D(TGEH) -0.011647 0.008140 -1.430821 0.1625
D(FDI) 0.005790 0.017364 0.333430 0.7411
ECM(-1) -0.249389 0.067221 -3.709956 0.0008

R-squared 0.661863    Mean dependent var 0.036858

Adjusted R-squared 0.618233    S.D. dependent var 0.062106
S.E. of regression 0.038374    Akaike info criterion -3.554647
Sum squared resid 0.045649    Schwarz criterion -3.334714
Log likelihood 68.98365    Hannan-Quinn criter. -3.477885
F-statistic 15.16972    Durbin-Watson stat 1.271997
Prob(F-statistic) 0.000001

Source: Regression Output Appendix III

The above result from the ECM model indicated that the error correction mechanism ECM(-1))

is negative and statistically significant as theoretically expected. The coefficient of ECM(-1) of

-0.249389 with probability value of 0.0008. This means that about 24.9% of the deviation from

equilibrium is corrected each year. That is, the speed of adjustment from short run

disequilibrium to long run equilibrium is 24.9 percent.

4.2.1 Evaluation based on economic criteria

Based on the theoretical underpinnings, we would evaluate the above result to verify if they

conform to the principles of economic theory (that is a prior expectation in signs and magnitude).

From table 4.3, the constant term is estimated to be 0.012484 which implies that the model

passes through the point of 0.012484 mechanically. It is the value of economic growth (RGDP)
 41

when all the explanatory variables are at zero level. .ie. the value of real gross domestic product

(economic growth) that does not depend on total government expenditure on education, total

government expenditure on health, and foreign direct investment in Nigeria.

Total Government Expenditure on Health (TGEH): The result from the error correction

model in table 4.3 above indicated that the coefficient of total government expenditure on health

is -0.011647 units with probability value of 0.1625. This implies that, total government

expenditure on health have negative insignificant impact on gross domestic product ( economic

growth) in Nigeria over the period covered. And this result is not in line with the a priori

expectation. That is, it does not conform to the a priori expectation or the theoretical

underpinnings.

Total Government Expenditure on Education: The ECM result also indicated that the

coefficient of total government expenditure on education is 0.169404 units with probability value

of 0.0000. This entails that total government expenditure on education have positive and

significant impact on gross domestic product (economic growth) in Nigeria. That is, when

Nigeria government increases her budget expenditure on education, it will bring significant

increase in economic growth only if the money is judiciously utilized. The result also conforms

to a priori expectation as theoretically expected.

Foreign Direct Investment (FDI): The impact of foreign direct investment on gross domestic

product (RGDP) in Nigeria is positive but statistically insignificant over the period covered. This

means that, when there is a unit rise in the rate of foreign direct investment in Nigeria, the gross

domestic product will on the average increase by 1.695198 units. And it is in line with the

theoretical underpinnings or the a priori expectations.

4.2.2 Evaluation Based on Statistical Criteria

 42

This is a tests carried out in order to evaluate statistical reliability of the estimates and parameters

of the model from simple observations (Gujarati and Porter 2009). These statistical tests were

carried out based on the following; multiple coefficient of determination (R 2), student t-test and

the F- statistic test.

4.2.2.1 The Coefficient of Multiple Determination. (R2 Test)

The coefficient of determination tells us to what percentage the variability in the dependent

variable is accounted for by the variability in the independent variables. Since R 2Adjusted is =

0.618233, this means that the independent variables account for 62 % of the variability in the

RGDP and this is very large enough.

4.2.2.2 T-test:

The result of the t-test of significance is shown in table 4.5 below:

The t-test is used to measure the individual statistical significance of the explanatory variables.
For a two tailed test, we have (tα/2). We employ the 5% confidence interval or level of
significance (α = 0.05) and 33 as our degree of freedom.

Decision Rule: Reject H0 if /tcal/ > tα/2, otherwise accept H0.

α = 0.05/2 = t0.025, df = n - k = 37- 4 = 33.

Therefore, t(0.025, 33) = 2.042 (from the t - distribution table)

Table 4.4

Variable t-value t-tabulated Decision Conclusion

TGEH -1.430821 2 Do not reject H0 Statistically insignificant

 43

TGEE 5.679337 2 Reject H0 Statistically significant

FDI 0.333430 2 Do not reject H0 Statistically insignificant

From the above result, the computed t-value for: total government expenditure on health (TGEH)

= 1.430821 < 2.0429. We therefore reject the alternative hypothesis and accept the null

hypothesis. Hence, total government expenditure on health has not exerted significant impact on

economic growth in Nigeria from the period covered.

Total government expenditure on education = 5.679337 >2.0429. We do not reject the alternative

hypothesis and reject the null hypothesis. Thus, total government expenditure on education has

significant impact on economic growth in Nigeria.

Foreign direct investment = 0.333430 < 2.0429. We reject the alternative hypothesis and accept

the null hypothesis and therefore conclude that foreign direct investment has no significant

impact on economic growth in Nigeria over the period studied.

4.2.2.3 The F- test:

It is a test used to measure the overall significance of the variables in the model. Under this test,

the null hypothesis is given as:

H0: the model is insignificant

H1: the model is significant

Decision Rule:

If Fcal> Fα (k-1, n-k), Reject H0; do not reject if otherwise

Fα (k-1, n-k) is the critical F-value at the chosen level of significance (α) and (k-1) degrees of

freedom (df) for the numerator and (n-k) degrees of freedom (df) for the denominator; k =
 44

number of parameters used in the regression;n = number of observations; α = 0.05. We can also

reject H0 if the probability value is less than 0.5(prob.<0.5), we do not reject if otherwise.

Since probability (F-statistic)=0.000001<0.05 we reject the null hypothesis and conclude that the

independent variables are jointly statistically significant.

4.2.3 Evaluation Based on Econometric Criteria.

The econometric tests are also performed based on the assumptions of the Classical Linear

Regression Model. The following Second Order Tests will be conducted: test for

multicollinearity, normality, heteroscedasticity and autocorrelation.

4.2.3.1 Normality test

The normality test used for this study is the Jarque - Bera (JB) test of normality which follows
chi-square distribution with 4 degree of freedom (4df).

H0: δ1 = 0 (the random variables are normally distributed)

H1: δ1 ≠ 0 (the random variable are not normally distributed)

Decision rule: Reject H0 if |JBcal| < |JBα (2df)| otherwise, accept H0 and reject H1 at 5% level of
significance.

Fig. 4.1 Jarque - Bera (JB) Test of Normality

7
Series: Residuals
6 Sample 1982 2017
Observations 36
5
Mean -2.31e-18
Median -0.000908
4 Maximum 0.071182
Minimum -0.079052
3 Std. Dev. 0.036114
Skewness -0.015590
2 Kurtosis 2.573325

Jarque-Bera 0.274536
1
Probability 0.871737

0
-0.08 -0.06 -0.04 -0.02 0.00 0.02 0.04 0.06 0.08

Source: Regression Output Appendix IV

 45

From the test, /JBcal/ = 0.730922, probability value = 0.693877.

From the table, /JB0.05 (4df)/ = 9.488. This implies that Jarque-Bera calculated is less than

Jarque-Bera tabulated (/JBcal/ < /JBα(4df)/). We therefore reject the null hypothesis and accept

the alternative hypothesis that the random variables or error terms are normally distributed as

reflected by the probability value of 0.871737.

4.2.3.2 Multi-Collinearity Test.

This test is to check if there is perfect correlation (collinearity) between independent variables.

This will be conducted using the correlation matrix. According to Gujarati (2009), if the

correlation coefficient between any pair of regressors exceeds 0.8, then there is multi-collinearity

between the two variables. The result of the correlation matrix is given below:

RGDP TGEE TGEH FDI

RGDP  1.000000  0.953218 -0.080640  0.976087

TGEE  0.953218  1.000000  0.128500  0.947771
TGEH -0.080640  0.128500  1.000000 -0.118114
FDI  0.976087  0.947771 -0.118114  1.000000

From the correlation matrix above, there is a strong multi-colinearity among: RGDP and TGEE,
RGDP and FDI, FDI and TGEE, while there is moderate correlation among; TGEE and TGEH.
Others are weak correlation. According to Blanchard in Gujarati (2009), multi-collinearity is
essentially a data deficiency problem and sometimes we have no choice over the data we have
available for empirical analysis.
4.2.3.3 Heteroskedasticity Test
The purpose of this test is to see whether the error variance of each observation is constant or
not. Non-constant variance can cause estimated model to yield a biased result. White’s general
heteroscedasticity test would be adopted for this purpose at 5% level of significance (Gujarati
et.al. 2012).
H0: presence of homoscedasticity

H1: presence of heteroscedasticity

 46

Decision rule: we reject H0 if the probability value Of Chi-Square is less than 0.05, we do not

reject if otherwise OR reject H0 if n.R2 >χ2 tab do not reject if otherwise.

Heteroskedasticity Test: Breusch-Pagan-Godfrey

F-statistic 0.625259    Prob. F(4,31) 0.6480

Obs*R-squared 2.687597    Prob. Chi-Square(4) 0.6114
Scaled explained SS 1.567729    Prob. Chi-Square(4) 0.8146

Test Equation:
Dependent Variable: RESID^2
Method: Least Squares
Date: 11/22/20 Time: 14:45
Sample: 1982 2017
Included observations: 36

Variable Coefficient Std. Error t-Statistic Prob.  

C 0.001249 0.000328 3.811181 0.0006

D(TGEE) 0.001063 0.001282 0.829360 0.4132
D(TGEH) 6.95E-05 0.000350 0.198629 0.8439
D(FDI) -0.000838 0.000746 -1.123647 0.2698
ECM(-1) 0.002190 0.002888 0.758161 0.4541

R-squared 0.074655    Mean dependent var 0.001268

Adjusted R-squared -0.044744    S.D. dependent var 0.001613
S.E. of regression 0.001649    Akaike info criterion -9.849347
Sum squared resid 8.43E-05    Schwarz criterion -9.629414
Log likelihood 182.2883    Hannan-Quinn criter. -9.772585
F-statistic 0.625259    Durbin-Watson stat 2.446351
Prob(F-statistic) 0.648016

Since the probability value of F-statistic is greater than 0.05. That is , 0.6480> 0.05, we do not

reject H0 and conclude that there is no presence of heteroskedasticity in the result.

4.2.3.4 Autocorrelation Test

This is used to test whether the error terms corresponding to different observations are
uncorrelated.

Breusch-Godfrey Serial Correlation LM Test:

F-statistic 2.239469    Prob. F(2,29) 0.1246

Obs*R-squared 4.816215    Prob. Chi-Square(2) 0.0900

Test Equation:
Dependent Variable: RESID
Method: Least Squares
Date: 11/22/20 Time: 14:42
 47

Sample: 1982 2017

Included observations: 36
Presample missing value lagged residuals set to zero.

Variable Coefficient Std. Error t-Statistic Prob.  

C -0.000400 0.007373 -0.054206 0.9571

D(TGEE) 0.007294 0.028947 0.251974 0.8028
D(TGEH) 0.001695 0.008195 0.206886 0.8375
D(FDI) -0.002439 0.016843 -0.144795 0.8859
ECM(-1) -0.038279 0.070492 -0.543029 0.5913
RESID(-1) 0.408781 0.198502 2.059333 0.0485
RESID(-2) -0.028274 0.212863 -0.132826 0.8952

R-squared 0.133784    Mean dependent var -2.31E-18

Adjusted R-squared -0.045433    S.D. dependent var 0.036114
S.E. of regression 0.036926    Akaike info criterion -3.587157
Sum squared resid 0.039542    Schwarz criterion -3.279250
Log likelihood 71.56882    Hannan-Quinn criter. -3.479689
F-statistic 0.746490    Durbin-Watson stat 1.869907
Prob(F-statistic) 0.617005

The result of the Breusch-Godfrey Serial Correlation LM Tests in the table above shows that the

probability value of F-statistics is 0.1246 which is greater than 0.05 at 5% critical value.

Therefore, we conclude that there is no presence of auto-correlation in the result.

4.2.3.5 Stability Test (CUSUM) of the Model

The result below showed the plot of stability tests (CUSUM) of the model. The CUSUM is

plotted against the critical bounds at 5% level of significance. The result indicates that the model

is stable as the critical bounds at 5% fell in between the two 5% lines.

 48

20

15

10

-5

-10

-15

-20
88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

CUSUM 5% Significance

4.2.3.6 Causal Analysis (GRANGER CAUSALITY TEST).

This test is undertaken to investigate whether there is a degree of causation of one variable on

the other.

Decision rule: If the computed F value exceeds the critical F value at the chosen level of

significance, we reject the null hypothesis; otherwise, we do not reject it. The results of the

granger causality test are summarized in the table below.

Pairwise Granger Causality Tests

Date: 11/22/20 Time: 15:19
Sample: 1981 2017
Lags: 2

 Null Hypothesis: Obs F-Statistic Prob. 

 TGEE does not Granger Cause RGDP  35  1.96862 0.1573

 RGDP does not Granger Cause TGEE  0.25474 0.7768

 TGEH does not Granger Cause RGDP  35  0.25038 0.7801

 49

 RGDP does not Granger Cause TGEH  0.43719 0.6499

 FDI does not Granger Cause RGDP  35  5.87926 0.0070

 RGDP does not Granger Cause FDI  1.69983 0.1998

 TGEH does not Granger Cause TGEE  35  0.30747 0.7376

 TGEE does not Granger Cause TGEH  0.13498 0.8743

 FDI does not Granger Cause TGEE  35  0.00043 0.9996

 TGEE does not Granger Cause FDI  1.62917 0.2130

 FDI does not Granger Cause TGEH  35  0.27531 0.7612

 TGEH does not Granger Cause FDI  8.80643 0.0010

The result of the Engle-Granger Pairwise Granger causality test showed that there is

No directional causality relationship between real gross domestic product and total government

expenditure on education. This implies that, total government expenditure on education does not

granger cause real gross domestic product and real gross domestic product also does not granger

cause total government expenditure on education in Nigeria.

The result also indicated that there is no causality relationship between total government

expenditure on health and real gross domestic product in Nigeria.

That means there is no directional causality relationship between them for the same period under

study.

4.3 Test of Hypotheses

4.3.1 Evaluation of Research Hypotheses

The results from the statistical tests conducted (especially the F-stat tests), indicates that the

overall result are significant in explaining variations in the dependent variables. Hence,
 50

inferences and conclusions drawn from the model are both sound empirically and reliable for

policy making. This research work is based on the following hypothesis:

Ho1: Government expenditure on education has no significant impact on economic

growth in Nigeria.

Ho2: Government expenditure on health has no significant impact on economic

growth in Nigeria

Ho3: There is no significant causality relationship among government expenditure on

education, government expenditure on health and economic growth in Nigeria.

The result of t-test in table 4.4 above indicates that government expenditure on education has

positive significant impact on economic growth in Nigeria. While, government expenditure on

health impacted negatively on economic growth in Nigeria and not statistically significant over

the period covered. The result also showed that foreign direct investment has insignificant impact

on economic growth in Nigeria for the same period under study.

So therefore, the hypothesis that government expenditure on education has no significant impact

on economic growth is rejected and we conclude that total government expenditure on education

has significant impact on economic growth in Nigeria.

More so, the hypothesis that government expenditure on health has no significant impact on

economic growth is not rejected,

Therefore, we conclude that government expenditure on health have no significant impact on

economic growth of Nigeria over the period studied. And this is as a result of inadequate public

spending on health sector, education, inadequate learning facilities, poor quality of education in

both primary and secondary schools, high rate of unqualified teacher in Nigeria school system

and poor standard of living in Nigeria over the years.

 51

The result of the Engle-Granger Pairwise Granger causality test used to test the hypothesis that

there is no significant causality relationship among government expenditure on education,

government expenditure on health and economic growth in Nigeria, showed that there is no

significant directional causality relationship among economic growth and government

expenditure on education, and government expenditure on health, in Nigeria over the period

studied.

4.4 Discussion of Major Findings

The study found out that the error correction mechanism (ECM(-1)) is negative and statistically

significant as theoretically expected. The coefficient of ECM(-1) of -0.249389 means that about

24.9 % of the deviation from equilibrium is corrected each year. This implies that the speed of

adjustment from short run disequilibrium to long run equilibrium is 24.9 percent.

F-statistic value of 15.16972 showed that explanatory power of the model is statistically

significant at 5 percent level of significance as indicated by prob(F-statistic) 0.000001 of the

model. This indicates that the independent variables exert joint influence on the dependent

variable.

Coefficient of multiple determinations (R2) value of 0.618233 (approximately 62%) implies that

the estimated (short run) model has a good fit and strong explanatory power and shows that

about 60% of the variation in economic growth (GDP) is explained by the independent variables

in the model.

Durbin-Watson Statistic (D-W) 1.271997 showed that autocorrelation does not exist in the

model. In other words, the residuals are not correlated.

The regression result also indicated that there is no significant impact of government total

expenditure on health on economic growth in Nigeria over the study period. That is, the
 52

coefficient of total government expenditure on health is negative -0.011647 though not

statistically significant at the 5% level of significance. This economically implies that, if total

government expenditure on health is raised by the national government, it will on the average

brings about decrease on gross domestic product in Nigeria for the period under review.

The result also showed that the impact of total government expenditure on education and foreign

direct investment on economic growth in Nigeria were positive but only total government

expenditure on education were significant over the period covered.

There is no significant directional causality relationship among economic growth and

government expenditure on education, and government expenditure on health, in Nigeria over

the period studied.

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1 Summary of Findings

The work examined the impact of government expenditure on education and health on economic

growth in Nigeria from 1981 to 2017. The specific objectives are: to investigate the impact of

government expenditure on education on economic growth in Nigeria, to examine the impact of

 53

government expenditure on health on economic growth in Nigeria, and to ascertain the causality

relationship among government expenditure on education, government expenditure on health and

economic growth in Nigeria.

From the result, the study indicated that the impact of total government expenditure on education

on economic growth in Nigeria was positive and statistical significant over the period covered.

This simply implies that if government increases more of her spending on education, the growth

of the economy will rise. This is because education is one of the most potent instruments for the

overall growth and development of any nation (Abolade, Ogbodo & Maduewesi, 2011).

Secondly, there is insignificant negative impact of government expenditure on health on

economic growth in Nigeria for the same period under review. This economically implies that, if

total government expenditure on health is raised by the national government, it will on the

average brings about decrease on gross domestic product in Nigeria for the period under review.

The result of the Engle-Granger Pairwise Granger causality test used to test the hypothesis that

there is no significant causality relationship among government expenditure on education,

government expenditure on health and economic growth in Nigeria, showed that there is no

significant directional causality relationship among economic growth and government

expenditure on education, and government expenditure on health, in Nigeria over the period

studied.

5.2 Conclusions

This study examined whether government expenditure on education and health has significant

impact on economic growth in Nigeria over the period of 1981-2017, and whether there is

significant causality relationship among; government expenditure on education, government

expenditure on health and economic growth in Nigeria. Error correction model (ECM) and

Granger causality test were used for the analysis.

 54

Based on the results obtained from the analysis, the study concludes that within the period under

review, government expenditure on health (TGEH) had not significantly impacted on economic

growth in Nigeria.

While the impact of government expenditure on education on economic growth were positive

and statistically significant for the same period covered.

And there is no significant directional causality relationship among economic growth and

government expenditure on education, and government expenditure on health, in Nigeria over

the period studied.

5.3 Recommendations
Based on the findings of this work, the study recommended that

(a) Federal government need to decrease her budget allocation to health sectors and reduce

the rate of importation of low standard health care facilities in the country. They should

also motivate the health care personnel with good remuneration to guarantee increased

productivity in the sector so that there will be significant contribution of it to economic

growth in Nigeria.

(b) Government should channel more fund to educational sector and ensure that the banner

of education is raised in the economy so that its contribution will be more significant on

economic growth in Nigeria.

(c) The standard of education need to be enhanced by injecting more funds that will be used

to retrain and motivates teachers at all levels and increasing education infrastructural

facilities so that there will be efficient and effective significant impact of it on economic

growth in Nigeria.

(d) Government should increase spending on educational sector so that more efficient

learning facilities will be acquired in all the primary and secondary schools in Nigeria.
 55

This will enable pupils and students in both nursery and primary schools to be more

creative and innovative in life thereby energizing the rate of human capital in Nigeria,

thus contributing to the growth and development of the economy.

REFERENCES

Abdullah, H. A., (2000). The Relationship between Government Expenditure and Economic
growth in Saudi Arabia, Journal of Administrative science vol. 12(2), pp.173-191.
Abu-bader, S. & A. Abu-Qarn (2003). Government Expenditures, Military Spending and
Economic Growth: Causality Evidence from Egypt, Israel and Syria. MPRA paper No.
1115. http://mpra.ub.unimuenchen. de/1115/
Abu,N. & Abdullah, U. (2010). Government Expenditure and Economic Growth in Nigeria,
1970– 2008: A Disaggregated Analysis. Business and Economic Journal, Vol. 4
Retrieved on 11/6/2010 from http://astonjournals.com/bej.
Abu , A. U. (2010). Government Expenditure and Economic Growth in Nigeria. BEJ-4.
Akpan, P. L. (2009). Public expenditure and poverty alleviation: Evidence from South Eastern
States of Nigeria, 1990-2004 (Unpublished Ph.D dissertation). University of Port
Harcourt, Nigeria.
Akrani, G. (2012). Meaning of Public Expenditure. Retrieved 15 February 2012 by Wikipedia.
Michael C.E and Omodero, C.O. (2015). Government expenditure and growth in the
Nigerian economy (1980 – 2013). Journal of Global Accounting. Vol. 3 No. 2 August,
2015. Pp. 14-27.
Alexander, A.M.O. (1990). Public Finance in a Developing Economy: The Nigerian Case,
Enugu: B&F Publications
Al-Yousif Y. (2000) Does Government Expenditure Inhibit or Promote Economic Growth: Some
Empirical Evidence from Saudi Arabia. Indian Economic Journal, 48(2)
Babatunde, M. A and R. A. Adefabi (2005) “Long Run Relationship between Education and
Economic Growth in Nigeria: Evidence from the Johansen’s Cointegration Approach”.
Paper presented at the Regional Conference on Education in West Africa: Constraints and
Opportunities, Dakar, Senegal, November 1st -2nd, 2005, Cornell University/ CREA/
 56

Ministerede l’Education du Senegal.

Baldacci, E., Guin-Siu, M. T. & De Mello, L. (2003). More on the effectiveness of public
spending on healthcare and education: A covariance structure model. Journal of
International Development, 15, 709–725.
Barro R, Sala-i-Martin X, (1992), Public Finance in Models of Economic Growth. Review of
Economic Studies, 59: 645-661.
Bleaney, M.., Gemmell, N.& Kneller, R. (2001). “Testing the Endogenous Growth Model:
Public Expenditure, Taxation, and Growth over the long-run”, The Canadian Journal of
Economics, 34(1): 36-57.
Chete, L. N. & Adeoye, B. W. (2002). Human capital and economic growth: Selected papers for the
2002 Annual Conference of the Nigeria Economic Society (NES). Ibadan: Polygraphics
Ventures Ltd.
Cooray A, (2009), Government Expenditure, Governance and Economic Growth. Comparative
Economic Studies, 51(3):401-418.
Dauda, R. O. (2011). Effect of public educational spending and macroeconomic uncertainty on
schooling outcomes: Evidence from Nigeria. Journal of Economics, Finance and
Administrative Science, 16(31), 7-21.
Devaran, S.& Vinaya, J.,(1993). The Composition of Public Expenditure and Economic Growth,
Journal of Monetary Economics,37.
Erkin B, (1988), Government Expenditure and Economic Growth: Reflections on Professor
Ram’s Approach, A New Framework and Some Evidence from New Zealand Ti Series
Data. Keio Economic Studies, 25(1): 59-66.
Foster, T.,& Skinner,R.(1992). Does the Relationship Between Government Expenditure and
Economic Growth Follow Wagner’s Law in Nigeria?. Annals of University of Petrosani
Economics, Vol. 10(2), pp.185-198
Fadiya, B. B. (2010). Determinants of educational outcomes in Nigeria. European Journal of
Social Sciences, 15(4), 501-511.
Ghali,A. (1998). Government spending and economic growth in Nigeria (1980 – 2011). Global
journal of management and business research economics and commerce. Vol. 13. Is. 5 v
1.0.
Gemmell, N.& Kneller R. (2001). The Impact of Fiscal Policy on Long Run Growth, European
Economy, London
Gregorous, A. & Ghosh, S. (2007).Fiscal Policy in an Endogenous Growth Model with Public
Capital and Pollution, Japanese Economic Review, 56(6): 67-84.
Johnson, A. & Dinardo, F.,(2007). Government Expenditures, Military Spending and Economic
Growth: Causality Evidence from Egypt, Israel and Syria. MPRA paper No. 1115.
http://mpra.ub.unimuenchen. de/1115/
Komain, J. andBrahmasrene, T.,2007, The Relationship Between Government Expenditures and
Economic Growth in Thailand, Journal of Economics and Economic Education Research,
8 (1), pp 93 – 102.
Landau, D.,(1983), Government Expenditure and Economic growth: A Cross-Country Study,
Southern Economic Journal, 49, 783-92.
Liu Chin, H.L., Hsu, C. and Younis, M.,(2008), The Association Between Government
Expenditure and Economic Growth: The granger causality test of the US Data. Journal of
Public Budgeting, Accounting and Financial Management
Loizides, J & Vamvoukas, G (2005). Government expenditure and economic growth: Evidence
from trivariate-causality testing. Journal of Applied Economics, 3(1), 125-152.
 57

Mitchel, J.D. (2005).The Impact of Government Spending on Economic Growth, Available at:
www.heritage.org.
Odia, L. O., & Omofonmwan, S. I. (2007). Educational system in Nigeria: Problems and
prospects. Journal of Social Sciences, 14(1) 81-86.
Okoro, A. S (2013). Government spending and economic growth in Nigeria (1980-2011). Global
Journal of Management and Business Research Economics and Commerce, 13(5), 20-29.
Olapade, B. C & Olapade, D. O (2010). Impact of government expenditure on economic growth
and development in developing countries: Nigeria as a case study
Olugbenga. A. O, Owoye O, (2007), Public Expenditure and Economic Growth, New Evidence
from OECD Countries.
Okoro, A. S (2013). Government spending and economic growth in Nigeria (1980-2011). Global
Journal of Management and Business Research Economics and Commerce, 13(5), 20-29.
Okorie, & Anowor (2017) The relationship between Economic Growth and Human Capital in
Developing Countries. International Letters of Social and Humanistic Sciences, Vol. 5,
pp. 55-62.
Olorunfemi, S. (2008). Public Investment and Economic Growth in Nigeria: An Autoregressive
model, Journal of international Finance and Economics.
Rajkumar, A. S. & Swaroop, V. (2008). Public spending and outcomes: Does governance
matter? Journal of Development Economics, 86, 96-111.

Ragan, C. & Lipsey, R.G. (2005). Economics, eleventh Canadian edition. Instructor’s Resource
CD-ROM. Pearson Education Canada.
Rostow, W.W. (1971). Politics and the stages of growth. Cambridge: Cambridge University Press.
Sambo, M. N., Ejembi, C. L., Adamu Y. M. & Aliyu, A. A.(2004). Out-of-pocket health
expenditure for under-five illnesses in a semi-urban community in Northern Nigeria.
Journal of Community Medicine & Primary Health Care, 16 (1), 29-32.
Soyibo, A., Olaniyan, O. & Lawanson, A. (2009). A situational analysis of the Nigerian health
sector. Report submitted to Management Education Research Consortium, Washington
DC.
Samuelson. O. (2006) Investigating the Interaction between Foreign Direct Investment and
Human Capital on Growth: Evidence from Nigeria. Asian Economic and Financial
Review, 3(9), pp. 1134-1151.
Schultz, T.W.(1993) The economic importance of human capital in modernization. Education
Economics,1(1),13-19 .
Schultz, T. (1961a) Investment in Human Capital, American Economic Review, Vol. 51 (1), pp.
1-17.
Smith, A. (1776) The Wealth of Nations, New York: The Modern Library, 1937.
Solow, R. M. (1957) Technical change and the aggregate production. Review of Economics and
statistics, August.
Temple, J. R. W. (1999). The new growth evidence. Journal of Economic Literature, 37 (1),
112- 156.
Todaro, M.P. and Smith, S.C. (2006), Economic Development, 8th Ed. India: Pearson Education
(p) Ltd.
Todaro, M., & Smith, S. C. (2011) Economic Development (11th Edition. Addison-Wesley:
London.
Udoh, E (2011). An examination of public expenditure, public investment and agricultural sector
 58

growth in Nigeria: Bounds testing approach. Journal of Business and Social Sciences, 291,
285-292.
Uwatt, B. U. (2002). Human development and economic growth in Nigeria (1960-2000):
Selected papers for the 2002 Annual Conference of the Nigeria Economic Society (NES).
Ibadan: Polygraphics Ventures Ltd.
Usman, A., Mobolaji, H. I., Kilishi, A. A., Yaru, M. A & Yakubu, T. A (2011). ). Public
expenditure and economic growth in Nigeria. Asian Economic and Financial Review, 1(3),
104-113.
World Bank (2010). Knowledge, Productivity and Innovation in Nigeria: Creating a New
Economy. Washington D. C.: The World Bank.

APPENDIX 1
PRESENTATION OF DATA
YEAR FDI RGDP TGEE TGEH
1981 10.48129 9.632859 3.291606 2.969132
1982 10.36609 9.61481 3.370291 2.942701
1983 10.49978 9.536021 3.438011 3.110979
1984 10.11273 9.53092 3.300456 3.120866
1985 10.69747 9.612728 3.614668 3.399195
1986 11.13338 9.631547 3.654547 3.785484
1987 11.53422 9.633248 3.766211 4.101668
1988 11.6836 9.693715 4.151339 5.036043
1989 11.76989 9.758154 4.289047 5.143825
1990 11.49776 9.868152 4.434026 5.134739
1991 11.27856 9.862617 4.70592 5.890843
1992 11.42903 9.884314 5.033505 6.133506
1993 11.3003 9.899881 5.399203 5.925619
1994 11.55659 9.902443 5.87116 5.986904
1995 12.00843 9.920993 6.02618 6.527373
1996 12.32616 9.960714 6.169506 6.708572
1997 12.39681 9.989165 6.303918 6.594126
1998 12.29749 10.01381 6.430042 6.713794
1999 12.39603 10.01902 6.570631 7.154459
2000 12.79788 10.07274 6.716619 7.204447
2001 13.49881 10.13728 6.896806 7.254178
2002 13.86524 10.27359 7.027492 7.267246
 59

2003 13.95615 10.36437 7.173268 7.047865

2004 14.54968 10.46369 7.323831 2.636697
2005 16.05264 10.53143 7.483638 2.700287
2006 15.24943 10.59652 7.641324 2.792024
2007 15.22343 10.66715 7.783724 2.810607
2008 15.687 10.73667 7.923529 3.084521
2009 15.9352 10.8169 8.061739 3.373895
2010 15.87481 10.90801 8.182727 3.728437
2011 16.12099 10.95973 8.417903 4.54223
2012 16.04901 11.00093 8.62852 4.809824
2013 16.04086 11.05436 8.886451 4.809824
2014 16.33773 11.11473 9.069399 4.825911
2015 16.20036 11.14221 9.102064 5.354839
2016 15.87712 10.90801 8.061739 5.019991
2017 15.58185 10.95973 8.182727 5.377498

Source: Central Bank of Nigeria Statistical Bulletin, 2017 Edition

APPENDIX 2
STATIONARITY TEST
TGEE
Null Hypothesis: D(TGEE) has a unit root
Exogenous: Constant
Lag Length: 0 (Automatic - based on SIC, maxlag=9)

t-Statistic   Prob.*

Augmented Dickey-Fuller test statistic -4.973372  0.0003

Test critical values: 1% level -3.632900
5% level -2.948404
10% level -2.612874

*MacKinnon (1996) one-sided p-values.

Augmented Dickey-Fuller Test Equation

Dependent Variable: D(TGEE,2)
Method: Least Squares
Date: 11/19/20 Time: 15:00
Sample (adjusted): 1983 2017
Included observations: 35 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

D(TGEE(-1)) -0.855981 0.172113 -4.973372 0.0000

C 0.117870 0.045894 2.568314 0.0149

R-squared 0.428417    Mean dependent var 0.001209

 60

Adjusted R-squared 0.411097    S.D. dependent var 0.304101

S.E. of regression 0.233367    Akaike info criterion -0.016961
Sum squared resid 1.797190    Schwarz criterion 0.071916
Log likelihood 2.296815    Hannan-Quinn criter. 0.013719
F-statistic 24.73443    Durbin-Watson stat 1.992142
Prob(F-statistic) 0.000020

Source:

TGEH
Null Hypothesis: D(TGEH) has a unit root
Exogenous: Constant
Lag Length: 0 (Automatic - based on SIC, maxlag=9)

t-Statistic   Prob.*

Augmented Dickey-Fuller test statistic -5.292049  0.0001

Test critical values: 1% level -3.632900
5% level -2.948404
10% level -2.612874

*MacKinnon (1996) one-sided p-values.

Augmented Dickey-Fuller Test Equation

Dependent Variable: D(TGEH,2)
Method: Least Squares
Date: 11/19/20 Time: 15:09
Sample (adjusted): 1983 2017
Included observations: 35 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

D(TGEH(-1)) -0.919806 0.173809 -5.292049 0.0000

C 0.064867 0.142116 0.456435 0.6511

R-squared 0.459068    Mean dependent var 0.010970

Adjusted R-squared 0.442676    S.D. dependent var 1.123322
S.E. of regression 0.838606    Akaike info criterion 2.541295
Sum squared resid 23.20760    Schwarz criterion 2.630172
Log likelihood -42.47265    Hannan-Quinn criter. 2.571975
 61

F-statistic 28.00578    Durbin-Watson stat 1.995211

Prob(F-statistic) 0.000008

source: e-view9

FDI

Null Hypothesis: D(FDI) has a unit root

Exogenous: Constant
Lag Length: 0 (Automatic - based on SIC, maxlag=9)

t-Statistic   Prob.*

Augmented Dickey-Fuller test statistic -5.520914  0.0001

Test critical values: 1% level -3.632900
5% level -2.948404
10% level -2.612874

*MacKinnon (1996) one-sided p-values.

Augmented Dickey-Fuller Test Equation

Dependent Variable: D(FDI,2)
Method: Least Squares
Date: 11/19/20 Time: 15:17
Sample (adjusted): 1983 2017
Included observations: 35 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

D(FDI(-1)) -0.972425 0.176135 -5.520914 0.0000

C 0.144771 0.073350 1.973704 0.0568

R-squared 0.480155    Mean dependent var -0.005145

Adjusted R-squared 0.464402    S.D. dependent var 0.550816
S.E. of regression 0.403112    Akaike info criterion 1.076240
Sum squared resid 5.362473    Schwarz criterion 1.165117
 62

Log likelihood -16.83420    Hannan-Quinn criter. 1.106920

F-statistic 30.48049    Durbin-Watson stat 1.956764
Prob(F-statistic) 0.000004

sourece: e-view9

RGDP

Null Hypothesis: D(RGDP) has a unit root

Exogenous: Constant
Lag Length: 0 (Automatic - based on SIC, maxlag=9)

t-Statistic   Prob.*

Augmented Dickey-Fuller test statistic -4.622040  0.0007

Test critical values: 1% level -3.632900
5% level -2.948404
10% level -2.612874

*MacKinnon (1996) one-sided p-values.

Augmented Dickey-Fuller Test Equation

Dependent Variable: D(RGDP,2)
Method: Least Squares
Date: 11/19/20 Time: 15:20
Sample (adjusted): 1983 2017
Included observations: 35 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

D(RGDP(-1)) -0.775135 0.167704 -4.622040 0.0001

C 0.030234 0.012068 2.505345 0.0173

R-squared 0.392972    Mean dependent var 0.001993

Adjusted R-squared 0.374578    S.D. dependent var 0.077850
 63

S.E. of regression 0.061567    Akaike info criterion -2.681949

Sum squared resid 0.125085    Schwarz criterion -2.593072
Log likelihood 48.93411    Hannan-Quinn criter. -2.651269
F-statistic 21.36325    Durbin-Watson stat 1.962132
Prob(F-statistic) 0.000056

source:e-view 9

APPENDIX 3
CO-INTEGRATION TEST

Null Hypothesis: ECM has a unit root

Exogenous: Constant
Lag Length: 0 (Automatic - based on SIC, maxlag=9)

t-Statistic   Prob.*

Augmented Dickey-Fuller test statistic -3.833237  0.0060

Test critical values: 1% level -3.632900
5% level -2.948404
10% level -2.612874

*MacKinnon (1996) one-sided p-values.

Augmented Dickey-Fuller Test Equation

Dependent Variable: D(ECM)
Method: Least Squares
Date: 11/20/20 Time: 22:45
Sample (adjusted): 1983 2017
Included observations: 35 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

ECM(-1) -0.607819 0.158565 -3.833237 0.0005

C 0.001508 0.006843 0.220340 0.8270
 64

R-squared 0.308085    Mean dependent var 0.001978

Adjusted R-squared 0.287118    S.D. dependent var 0.047940
S.E. of regression 0.040477    Akaike info criterion -3.520730
Sum squared resid 0.054066    Schwarz criterion -3.431853
Log likelihood 63.61278    Hannan-Quinn criter. -3.490050
F-statistic 14.69371    Durbin-Watson stat 1.907251
Prob(F-statistic) 0.000539

source: e-view 9

APPENDIX 5
ERROR CORRECTION MODEL

Dependent Variable: D(RGDP)

Method: Least Squares
Date: 11/22/20 Time: 11:54
Sample (adjusted): 1982 2017
Included observations: 36 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.  

C 0.012484 0.007629 1.636348 0.1119

D(TGEE) 0.169404 0.029828 5.679337 0.0000
D(TGEH) -0.011647 0.008140 -1.430821 0.1625
D(FDI) 0.005790 0.017364 0.333430 0.7411
ECM(-1) -0.249389 0.067221 -3.709956 0.0008

R-squared 0.661863    Mean dependent var 0.036858

Adjusted R-squared 0.618233    S.D. dependent var 0.062106
S.E. of regression 0.038374    Akaike info criterion -3.554647
Sum squared resid 0.045649    Schwarz criterion -3.334714
Log likelihood 68.98365    Hannan-Quinn criter. -3.477885
F-statistic 15.16972    Durbin-Watson stat 1.271997
Prob(F-statistic) 0.000001

source: e-view 9
 65

APPENDIX 6

NORMLITY TEST
7
Series: Residuals
6 Sample 1982 2017
Observations 36
5
Mean -2.31e-18
Median -0.000908
4 Maximum 0.071182
Minimum -0.079052
3 Std. Dev. 0.036114
Skewness -0.015590
2 Kurtosis 2.573325

Jarque-Bera 0.274536
1
Probability 0.871737

0
-0.08 -0.06 -0.04 -0.02 0.00 0.02 0.04 0.06 0.08

Source: e-view 9
 66

APPENDIX 7

AUTO-CORRELATION TEST

Breusch-Godfrey Serial Correlation LM Test:

F-statistic 2.239469    Prob. F(2,29) 0.1246

Obs*R-squared 4.816215    Prob. Chi-Square(2) 0.0900

Test Equation:
Dependent Variable: RESID
Method: Least Squares
Date: 11/22/20 Time: 14:42
Sample: 1982 2017
Included observations: 36
Presample missing value lagged residuals set to zero.

Variable Coefficient Std. Error t-Statistic Prob.  

C -0.000400 0.007373 -0.054206 0.9571

D(TGEE) 0.007294 0.028947 0.251974 0.8028
D(TGEH) 0.001695 0.008195 0.206886 0.8375
D(FDI) -0.002439 0.016843 -0.144795 0.8859
ECM(-1) -0.038279 0.070492 -0.543029 0.5913
RESID(-1) 0.408781 0.198502 2.059333 0.0485
RESID(-2) -0.028274 0.212863 -0.132826 0.8952
 67

R-squared 0.133784    Mean dependent var -2.31E-18

Adjusted R-squared -0.045433    S.D. dependent var 0.036114
S.E. of regression 0.036926    Akaike info criterion -3.587157
Sum squared resid 0.039542    Schwarz criterion -3.279250
Log likelihood 71.56882    Hannan-Quinn criter. -3.479689
F-statistic 0.746490    Durbin-Watson stat 1.869907
Prob(F-statistic) 0.617005

source: e-view 9

APPENDIX 8

HECTROSKEDASTICITY TEST

Heteroskedasticity Test: Breusch-Pagan-Godfrey

F-statistic 0.625259    Prob. F(4,31) 0.6480

Obs*R-squared 2.687597    Prob. Chi-Square(4) 0.6114
Scaled explained SS 1.567729    Prob. Chi-Square(4) 0.8146

Test Equation:
Dependent Variable: RESID^2
Method: Least Squares
Date: 11/22/20 Time: 14:45
Sample: 1982 2017
Included observations: 36

Variable Coefficient Std. Error t-Statistic Prob.  

C 0.001249 0.000328 3.811181 0.0006

D(TGEE) 0.001063 0.001282 0.829360 0.4132
D(TGEH) 6.95E-05 0.000350 0.198629 0.8439
D(FDI) -0.000838 0.000746 -1.123647 0.2698
ECM(-1) 0.002190 0.002888 0.758161 0.4541

R-squared 0.074655    Mean dependent var 0.001268

Adjusted R-squared -0.044744    S.D. dependent var 0.001613
 68

S.E. of regression 0.001649    Akaike info criterion -9.849347

Sum squared resid 8.43E-05    Schwarz criterion -9.629414
Log likelihood 182.2883    Hannan-Quinn criter. -9.772585
F-statistic 0.625259    Durbin-Watson stat 2.446351
Prob(F-statistic) 0.648016

source: e-view 9

APPENDIX 9

STABILITY TEST
20

15

10

-5

-10

-15

-20
88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

CUSUM 5% Significance

Source: e-view 9
 69

APPENDIX 10

MULTI-COLLINEARITY TEST

RGDP TGEE TGEH FDI

RGDP  1.000000  0.953218 -0.080640  0.976087

TGEE  0.953218  1.000000  0.128500  0.947771
TGEH -0.080640  0.128500  1.000000 -0.118114
FDI  0.976087  0.947771 -0.118114  1.000000

Source: e-v-ew9
 70

APPENDIX 11

GRANGER CAUSALITY TEST

Pairwise Granger Causality Tests

Date: 11/22/20 Time: 15:19
Sample: 1981 2017
Lags: 2

 Null Hypothesis: Obs F-Statistic Prob. 

 TGEE does not Granger Cause RGDP  35  1.96862 0.1573

 RGDP does not Granger Cause TGEE  0.25474 0.7768

 TGEH does not Granger Cause RGDP  35  0.25038 0.7801

 RGDP does not Granger Cause TGEH  0.43719 0.6499

 FDI does not Granger Cause RGDP  35  5.87926 0.0070

 RGDP does not Granger Cause FDI  1.69983 0.1998

 TGEH does not Granger Cause TGEE  35  0.30747 0.7376

 TGEE does not Granger Cause TGEH  0.13498 0.8743

 FDI does not Granger Cause TGEE  35  0.00043 0.9996

 TGEE does not Granger Cause FDI  1.62917 0.2130

 FDI does not Granger Cause TGEH  35  0.27531 0.7612

 TGEH does not Granger Cause FDI  8.80643 0.0010
 71

source: e-view 9