Long-term Determinants of Government Expenditure: A Disaggregated Analysis for Nigeria

Abstract: This study examines the long-term determinants of marked expansion of government expenditure in Nigeria. Using annual time series data for a period of 51 years (1960-2010) and a single equation estimation approach, we overcome an omitted variable bias by testing a wide range of leading hypothesis (on the determinants of government expenditure) in a comprehensive specification. The result yields a variety of interesting and qualified evidence. Among other results, we found that inflow of foreign aid contributes to expansion of government recurrent expenditure at the expense of capital spending; debt servicing reduces all components of government expenditure;  revenue is a major factor that accounts for long-term government growth; openness has a significant negative association over government expenditure; higher population (mostly in urban areas) leads to higher government spending; military regime is favorable to capital expenditure expansion in Nigeria than the civilian administration; election period is associated with higher government expenditure than would otherwise be the case. To ensure fiscal sustainability and the overall growth of the Nigerian economy, some useful policy options have been suggested. These include cautious trade liberalization policy, diversification of the Nigerian economy and internally revenue generation improvement initiative, fiscal restraint on further foreign debt, population reduction programme or legislation, reduction in the cost of election, etc.