Analysing the Role of Public Infrastructure Spending on the Nigerian Economy

Abstract

This study is an empirical investigation of the role of government infrastructure spending on the Nigerian economy. To achieve this, a model was formulated to empirically analyze the role of government infrastructure spending on the Nigerian economy using Ordinary Least Square (OLS) technique with statistical test of significance. The variables used were Aids and Grants on infrastructure (AGI), Government capital expenditure on infrastructure (GCEX), external debt financing (EXD) and gross fixed capital formation (GFCF) and GDP. The five variables (GDP, CGEXP, RGEXP and GFCF) were subjected to unit root test using the Augmented Dickey-Fuller (ADF) test. As is the case most times, four variables were found to be non-stationary but were stationary after first difference i.e. integrated of order one; I(1). EXD was stationary at level .The cointegration test was done using Engel-Granger and Philips-Oularis cointegration test. Both test are single equation test suitable for this study. Engel-Granger and Philips-Oularis cointegration test indicated the variables are cointegrated at 1% level of significance. This shows that the variables have a long-run equilibrium relationship. The OLS result obtained showed that Aids and Grants on infrastructure (AGI) have a positive impact on GDP, with the impact being statistically insignificant. Government Capital Expenditure (GCEX) have a positive and statistically significant impact on GDP. External Debt Financing (EXD) have a negative and statistically insignificant impact on GDP. Based on the conclusion the study recommends that government should ensure that capital expenditure is properly managed in a manner that it will raise the nation’s production capacity and promote infrastructure development.