GOVERNMENT EXPENDITURE ON
ENGINEERING CONSTRUCTION,
COMMUNICATION AND
TRANSPORTATION: EVALUATION OF
IMPACT ON ECONOMIC GROWTH IN
NIGERIA
DR. MRS. I. S. MADUEME DEPARTMENT OF ECONOMICS UNIVERSITY OF NIGERIA, NSUKKA
ENUGU STATE, NIGERIA stellamadueme@gmail.com
ALAMEZIEM KELECHI STANLEY DEPARTMENT OF ECONOMICS UNIVERSITY OF NIGERIA, NSUKKA
ENUGU STATE, NIGERIA
Abstract
This work tries to assess the impact of government investment in engineering construction, communication technology and transportation on economic growth in Nigeria. One null hypothesis guided the study and data was collected from 1977 to 2008 from Central Bank of Nigeria statistical bulletin. Data were analysed using regression, F and t tests, stationary and co-integration tests. Results revealed that increases in government expenditure in engineering construction impacted more significantly on economic growth than their expenditure on transport and communication. Increased expenditure on all sectors was recommended especially on engineering construction. In addition policy modifications are needed to ensure that government expenditure on the transportation and communication sector achieve greater impacts on economic growth.
Keywords: Expenditure, Technology, Growth
1. Introduction and Theoretical Issues:
Economic growth according to Onah (2009) refers to the growth of opportunities to satisfy economic wants. According to Hardwick Khan and Langmead (1994), it is the increase in a country’s productive capacity identifiable by a sustained rise in real national income over a period of years. According to him the three main determinants are growth of the labour force, capital stock and technical progress where labour force is a function of the natural increase in population, international migration, participation rate or proportion of economically active population to total population. Capital stock grows through investment while technical progress takes the forms of improved techniques of production, machinery, inventions, improvement in education and any other thing that improves the quality of the capital stock or labour force. Economic growth is a major goal of all economies since it can lead to increased standard of living, more equitable distribution of income, poverty reduction, improved balance of payment position, better international image to mention but a few.
investment, trade and productive activities. Unfortunately infrastructural underdevelopment especially with respect to engineering construction, transportation and communication facilities has been a common problem in many African countries especially Nigeria. This has led to low investment, capacity underutilization, balance of payment difficulties, unbalanced development between urban and rural areas, unemployment to mention but a few. In order to grapple with such problems, Nigeria as a nation has made various investments in communication technology and the transportation sector. Table 1 shows their expenditure for selected years.
Table I: Government expenditure on engineering construction, transport and communication from 1977 to 2008 (in billion naira)
Transport and Communication Construction Real gross domestic product
3950.391 580.2589 53686.15 2027.515 474.2474 51921.81 2530.922 402.9075 56516.24 28790.18 382.432 60752.75 16792.75 428.3944 48004.55 1242.419 295.6757 46160.16 859.7417 457.0982 40543.3 163.2348 255.2555 323447.75 151.1383 300.7709 35201.13 279.1632 268.1544 34009.83 248.0538 365.81661 46971.13 266.3087 266.9095 39789.05 1865.1336 145.2754 41218.89 206.0813 204.6829 47319.82 92.90839 195.7511 48987.15 127.6358 240.7725 57723.69 238.8508 330.4236 47158.34 76.36552 168.0872 39516.12 124.0358 108.6317 49124.68 213.9958 27.46642 53119.16 154.8696 168.2769 49759.2 134.167 288.1675 44592.29 222.9172 26.32559 49322.98 87.44569 89.94838 66168.27 645.9757 87.49216 57401.51 500.082 80.19521 74386.67 276.6992 159.9815 80097.82 146.2466 153.0805 93635.67 195.1326 190.7394 101466.2 96.55458 145.8292 119424.9 280.6286 1228.427 126097.7 483.8126 1014.224 132928.4 495.8649 1027.829 120310.5
Source: Central Bank of Nigeria Statistical bulletin for the selected years
The aim of such expenditure is to trigger of sustained desired level of economic growth in the Nigerian economy. Hence after many years of such investments in the communication and transportation sector it becomes pertinent to assess whether such investments have actually impacted positively in economic growth. Hence the singular null hypothesis of this work at P< 0.05 is:
Ho1: There is no significant impact of government expenditure in engineering construction, transportation and communication technology on economic growth from 1977 to 2008.
2. Literature Review
Sahoo, Dash and Natay (2010) in their work on infrastructure development and economic growth in China noted that investment in infrastructure impacts on the economy by
Creation of production facilities.
Sala (2007) and Holzeakin and Lovely (1995) noted in their separate works that greater investments in physical infrastructure creates a good climate for economic growth. Soc and Lee (2000) worked on the dynamics between investment in information technology and growth gap. They studied OECD countries. The results of their study showed that growth especially with respect to productivity; innovation and social well being are dependent on an enabling socio economic environment. Canning (1999) studied the contribution of infrastructure to aggregate output. He used cross country data from 1960 to 1990 and discovered that the elasticity of output with respect to physical capital is 0.4.
Canning and Pedroni (1999) worked on the relationships between infrastructure and long run economic growth. They used the total factor productivity model. Their results showed that infrastructural development yielded positive impacts on income level though the gains vary according to the type of infrastructure. Ford and Poret (1991) in their work on eleven OECD countries discovered that infrastructure development in Sweden, USA, Canada, Belgium and Germany has positive effect on growth of output. Calderon and Serven (2004) studied the effect of infrastructural development on growth and income distribution in hundred countries from 1960 to 2000. Their results portrayed that changes in the quantity and quality of infrastructure affects the level of economic growth. Pereira and Roca (2001) discovered that if the government increases infrastructural investment by one percent, its runrun effect on output will be 0.5%. This positive impact on economic growth was also discovered by Thanapat (2010) in his work on impact of infrastructural investment on economic growth.
A synthesis of these literatures will show that such works have been conducted in various countries such as Thailand, China, Germany, USA etc. This work is centred on finding out the extent of impact of government expenditure on the telecommunication and transportation sector on economic growth. The expected functional relationship is stated as follows:
RGDP = α + GETC + GECONS + µ…………(1) Where RGDP is real gross domestic product as a proxy for economic growth; GETC is the government expenditure on transport and communication; GECONS is the government expenditure on engineering construction;
Α is the intercept while µ is the error term
3. Data Sources and Methods of Analysis
Secondary data with respect to the study are obtained from the Central Bank of Nigeria statistical bulletins. The consumer price index was used to deflate the observations in order to control the effect of inflation. Regression, ordinary least squares were used for analysis. Stationarity tests were done using Augmented Dickey Fuller, t and F test was done using Augumented Engel Granger approach. Data were also analysed using T tests, F tests and coefficient of determination.
4. Presentation of Results
The presentation of the results are done in Tables II to IV.
Table II: Result of Stationary test.
Variables ADF value Critical values Order of Integration
Log (RGDP) -3851490 1% = -3.66 5% = -2.96 10% = -2.62
Stationary at first difference Log (GETC) -4.661 1% = -3.67
5% = -2.96 10% = -2.62
Stationary at first difference Log (GECON) -6.084 1% = 3.66
5% = -2.96 10% = -2.62
Stationary at first difference
Table III: Results of Cointegration test
Variable ADF statistics Critical Tau
U1 -4.42 -2.95
The critical value of Augmented Dickey Fuller (ADF) of the residual exceeds the critical Tau hence it implies that there is a long run relationship between the dependent and independent variable.
Table 4: Regression results
Variable Value Standard error T value
C 7.54 0.466 16.17 Log (GETC) 0.0497 0.03 1.409
Log (GECONS) 0.1176 0.041 2.84
5. Interpretation of Results
The results shows that the value of the coefficient is 0.049 according to table 4. This implies that economic growth will increase by 0.049 percent if there is a one percent increase in government expenditure in communication and transportation. It is also worthwhile to mention that the t ratio is 1.49 which implies that the assumed positive change of 0.049 is not significant statistically with respect to engineering construction. Its coefficient value of 0.1176 implies that economic growth will increase by 0.12 percent with a 1% increase in government expenditure on engineering construction.
Table 5: Results of t test.
Variables T calculated values T table Decision Conclusion
Log GETC 1.49 2.05 Accept Not significant Log GECONS 2.84 2.052 Reject Significant
The results of the test show that while increases in government expenditure on all variables has positive impact with respect to transport and communication technology on economic growth was not significant. The other hand increased expenditure on engineering construction has a statistically significant impact on economic growth.
The coefficient of determination (R2 ) was also estimated .R2 value obtained was 0.81 while the adjusted R2 = 0.78. This shows that 77.8% of the variations in the dependent variable which is economic growth are explained by the independent variables which are engineering construction, transportation and communication. F test values shows that F calculated is 23.48 while F table value is 2.56 since 23.47 is greater than 2.56 the null hypothesis is therefore rejected. This means that the variables are not jointly statistically significant.
6. Conclusion
References
[1] Calderon, C and Serven, L. (2004), “The effects of infrastructure development on growth and income distribution” Working Papers of the Central Bank of Chile Working Paper No. 270.
[2] Canning, D. (1999), “Infrastructure’s contribution to aggregate output” World Bank Policy Research Working Paper, No. 2246, Washington, D. C.
[3] Canning, D and Pedroni, P (1999)Infrastructure and long run economic growth JEL Classifications: OI, H4 [4] Hardwick, Khan & Langmed (1994) An introduction to modern economics, Britain: Longman.
[5] Onah F. E. (2009) Principles of economics, Nigeria: Great AP Express publishers limited.
[6] Pereira, A.M. and Roca, O (2001). “Infrastructures and private sector performance in Spain” Journal of Policy Modeling, Vol. 23, No, 4, pp. 371-384
[7] Sahoo, P. Dash, R.K. and Nataraj, G. (2010), “Infrastructure development and economic growth in China” IDE DISCUSSION PAPER No. 261.
[8] Seo, H.J. Lee, Y.S. (2000), Dynamics between IT Investment and Growth Gap: A Study of OECD Countries. Kukje Kyungje Yongu 6(3), 217-247.
