Background of the Study
The relationship between government expenditure in the educational sector and economic growth has continued to generate series of debates among scholars. With its large reserves of human and natural resources, Nigeria has the potential to build a prosperous economy, reduce poverty significantly, and provide health education and infrastructural services that is population needs.
Nevertheless, despite the country’s relative oil wealth, poverty is widespread, and Nigeria’s basic social indicators place it among the twenty poorest countries in the world (World Bank, 2004). In addition, many Nigerians have continued to wallow in abject poverty, while more than 50 percent live on less than US$1 per day. Dilapidated infrastructure (especially roads and power supply) in Nigeria is everywhere is visible sign which has led to the collapse of many industries, and has resulted in high level of unemployment. Moreover, macroeconomic indicators like balance of payments, import obligations, inflation rate, exchange rate, and national savings reveal that Nigeria has not fared well in the last couple of years (CBN, 2009).
Although, incidence of poverty in Nigeria is much higher in rural areas tan in urban centers, the urban slum-dwellers form one of the more deprived groups in Nigeria. The poor are those who are unable to obtain an adequate income, find a state job, own property or maintain healthy living.
The recent revival of interest in growth theory has also revived interest among researchers in verifying and understanding the linkages between government spending and economic growth especially in a developing country like Nigeria. Over past decades, public sector spending has been increasing in geometric terms through government various activities and interactions with its Ministries Department and Agencies (MDA’s) (Niloy, 2003). Although, the general view is that public expenditure either recurrent or capital expenditure, notably on social economic infrastructure can be growth-enhancing, the financing of such expenditure to provide essential infrastructural facilities including transport, electricity, telecommunications, water and sanitation, waste disposal, education and health can be growth-retarding (for example, the negative effect associated with taxation and excessive debt). The size and structure of public expenditure will determine the pattern and form of growth in output of the economy. The structure of Nigerian public expenditure can broadly be categorized into capital and recurrent expenditure. The recurrent expenditure are government expenses on capital projects like roads, airports, education, telecommunication, electricity generation etc., are referred to as capital expenditure. One of the main purposes of government spending is to provide infrastructural facilities.
The effect of government spending on economic growth is still an unresolved issue theoretically as well as empirically. Although the theoretical positions on the subject are quite diverse, the conventional wisdom is that a large government spending is a source of economic instability or stagnation. Empirical research, however, does not conclusively support the conventional wisdom. A few studies report positive and significant relation between government spending and economic growth while several others find significantly negative or no relation between an increase in government spending and growth in real output.
An extensive review of literature, presented in the next section , clearly indicates that empirical evidence on the effect of government spending on economic growth is at best mixed.