Effects of Public Expenditure and Financial Development on Economic Growth: Empirical Evidence from Nigeria

The relationship between economic growth, government expenditure and financial development has widely explored but the latter has separately been modelled. Modelling the trio in a single linear model may generate new information. This study examines the effects of disaggregated public expenditure and financial development indicators on economic growth, focusing on Nigeria. Time series data, spanned between 1981 and 2016, were collected and analyzed using ordinary squares technique. We find that specification of the expenditure-growth model with financial development is valid. All the disaggregated financial development and public expenditure indicators have significant effects on economic growth, with positive regression signs except two -financial private sector credit and recurrent expenditure–directionally different. The effect of the former is more dominant, signaling important policy implication considering economic growth of Nigeria.