Public and Private Sector Expenditure and Nigeria's Economic Performance: An ARDL Analysis

Abstract

This study examined the relationship between public and private sector expenditure and their influence on economic growth in Nigeria. Gross domestic product was considered as the dependent variable, while public capital expenditure, public recurrent expenditure, and commercial bank credit to the private sector were treated as independent variables. The Auto Regressive Distributed Lag (ARDL) analysis was employed to analyze the data, covering the period from 1981 to 2023. The findings revealed important insights into the dynamics between these variables. Notably, public capital expenditure in lag two emerged as a significant predictor of economic growth, as evidenced by its positive and statistically significant coefficient. This implied that public investment aimed at stimulating output exhibited a delayed but positive effect on gross domestic product in Nigeria. Conversely, the commercial bank credit to the private sector in lag three demonstrated a negative and statistically significant relationship with gross domestic product, suggesting that a decrease in private sector credit could hinder economic growth. Based on these results, policymakers were recommended to prioritize and increase public capital expenditure to foster economic growth as it is crucial to maintain a conducive environment for credit availability and accessibility to the private sector. Implementing supportive financial policies lead to improvement on the banking sector infrastructure, and ensuring easy access to financing in order to stimulate private sector investment, job creation, and overall economic productivity. Striking a balance between public and private sector initiatives helps Nigeria to unlock its full growth potential and paves the way for sustainable development.