Public expenditure and capital formation: Evidence from Nigeria

Abstract

The paper examined the relationship between public expenditure and capital formation in Nigeria, 1981-2018.Adopting the Ordinary Least Square Multiple Regression, the study revealed a significant relationship exists between public expenditure and capital formation in Nigeria. Also, the model indicated that three of the public expenditure components namely, total public expenditure on economic services (TES), total public expenditure on social and community services (TSC) and total public expenditure on transfers (TT) were statistically significant with all the explanatory variables meeting the a priori expectation with their positive coefficients. Based on the findings, the study concluded that public expenditure has positively contributed to the level of capital formation in Nigeria, thus the study recommended that proper monitoring should be placed on public expenditure on administration. This recommendation stems from the insignificant contribution of this component of public expenditure; that could be a pointer to misappropriation from this particular component. Overall, these results lend further credence to the Law of increasing state activities by Wagner and his contemporaries.