Capital vs Recurrent: The Challenge of Nigerian Economic Growth

Abstract

This study compared the effect of capital and recurrent expenditure on Nigeria economic growth. The objective was to compare the effect capital and recurrent expenditure on Nigeria economic growth. Time series data were collected from Central Bank of Nigeria Statistical Bulletin from 1990-2021. Real gross domestic product was modeled as the function of capital and recurrent expenditure on administration, social services, economic service and transfer. Ordinary least square method, Augmented Dickey Fuller unit root test, cointegration, granger causality test and vector error correction was used as data analysis methods. The study found adjusted R-Square of the capital expenditure is 0.355303 while the recurrent expenditure is 0.341396. This indicates that capital expenditure explained 35.5 percent while recurrent expenditure explained 34.1 percent variation in Nigeria economic growth. The two models were statistically significant when judged by the value of F-statistic and probability. Capital expenditure on administration added 0.73 on Nigeria economic growth while recurrent expenditure on administration reduced economic growth by 6.3 percent. Capital expenditure on economic service added 0.86 while recurrent added 8.94 percent on economic growth, capital expenditure on social services added 0.98 while recurrent added 3.88 percent, capital expenditure on transfers added 0.93 while recurrent reduced by 0.1 percent. From the findings, the study conclude that capital expenditure has greater effect on economic growth than recurrent expenditure. The study recommends more budget allocations to capital expenditure than recurrent expenditure for better economic growth.