Effects of Government Expenditure on Private Investment in Nigerian Economy (1980–2016)

Abstract

This study examined the effect of government expenditure on private investment in Nigeria during the period 1980–2016. The error correction model analysis was used in the study to analyze the relationship between the two variables. The study found that there is a long-run relationship among the variables and that the interest rate and inflation have negative but significant impact on private investment in the long run. On the other hand, government expenditure has positive but insignificant impact on private investment in the long run. In the short run, government expenditure and interest rate have a significant positive impact on private investment in Nigeria, while GDP per capita and inflation negatively impact private investment. The study concluded that there is the need for the government to increase its expenditure particularly on the provision of more infrastructural facilities as this will attract more investment from within and outside the country.

Revisiting Government Expenditure and Private Investment Nexus: An ARDL Approach

“…Also, moderate rise in inflation might boost the marginal propensity to profit for domestic investor, being incentive to investment even when the cost of production rises, provided that elasticity demand for those product are fairly inelastic. These results lends credence to earlier studies, such as Petrović et al (2020), Deleidi et al (2020), Deleidi (2018), Berperogiou et al (2017, Magableh and Ajlouni (2016) and Olayungbo and Olayeni (2018), Ouedraogo et al (2019), Maingi (20017), Akinlo et al (2018), Bahal et al (2018), Miyamoto et al (2017) and Ambler et al (2017). While it contradicts the ealier findings of Funashima et al (2019), Furceri et al (2018) and Nguyen and Trinh (2018).…”

Government Capital Expenditure and Private Sector Investment in Nigeria: Co-integration Regression and Toda-Yamamoto Causality Analysis

“…This finding contrasts the results of Afonso and Aubyn (2019), Yovo (2017) and Dash (2016). However, it corroborated Nguyen and Phong (2018), Akinlo and Oyeleke (2018) and Xu and Yan (2014). Foye (2014) employed Ordinary Least Square Model to probe the relationship between public capital spending and private investment in Nigeria from 1970 to 2006.…”

“…In the same vein, they submitted that public investment is positively related to domestic private investment and foreign direct investment both in the short-and long-run. Moreover, Akinlo and Oyeleke (2018) used error correction model to analyze the relationship between government expenditure and private investment in Nigeria over the period 1980 to 2016. Their findings indicated that inflation and interest rate have a significant adverse effect on private sector investment in the long run, while government expenditure is positively related to private investment.…”

“…Their findings indicated that inflation and interest rate have a significant adverse effect on private sector investment in the long run, while government expenditure is positively related to private investment. Furthermore, Akinlo and Oyeleke (2018) revealed that interest rate and government expenditure exerted a significant positive impact on private investment in the short-run, while GDP per capita and inflation deterred private investment. In a similar vein, Nguyen and Trinh (2018) explored the impact of public expenditure on private investment and economic growth in Vietnam from 1990 to 2016 using autoregressive distributed lag (ARDL) model.…”

“…This view argued that government capital expenditure complements private investment at the initial stage and the relationship changes to being substitutive as government expands the scope of its activities (Foye, 2014). This lack of consensus in the theoretical literature gave rise to many empirical studies (Yovo, 2017;Makuyana and Odhiambo, 2018;Akinlo and Oyeleke, 2018) that are inconclusive. Consequence upon these arguments, the net effect of government capital expenditure on private investment is an empirical question.…”