EFFECT OF GOVERNMENT SPENDING AND INFLATION ON NATIONAL OUTPUT IN NIGERIA

Abstract

 This study has examined what effect government spending and inflation have national output in Nigeria. Secondary data was used for analysis which was obtained from the Statistical Bulletin of the Central Bank of Nigeria 2022 (Real Sector and Public finance) and world bank data. In scope, this study covered the period 1981-2022. Time series data used in the model were those of gross domestic product (GDP), annual general inflation rates and components of government expenditure including capital and recurrent. Real GDP was used as the variable to measure national output, public expenditure, classified into capital and recurrent expenditure served as variables of government spending and annual inflation rates was used for inflation. To measure relationship between national output and public spending, Real GDP was the dependent variable; capital and recurrent components of public expenditure and inflation rate were the independent variables. Multivariate Analysis of Variance (MANOVA) model using IBM SPSS Statistical package was applied for analysis, based on the perceived causal relationship between government spending, national production output and inflation. Results of the analysis showed that capital and recurrent expenditure have strong positive association and significant correlation with national output while inflation rate has a positive but insignificant relationship with national output for the study period. Based on findings, it is recommended that government should use expenditure as a fiscal policy instrument to influence economic productivity and pursue macroeconomic objectives by paying special attention to expenditure components that impact more on national output and that productivity alone should not be used as an economic tool to control inflation as there is positive but insignificant relationship between both variables.