CHAPTER ONE

INTRODUCTION

1. BACKGROUND OF THE STUDY

Some scholars have argued that increase in government spending can be an effective tool to stimulate aggregate demand for a stagnant economy and to bring about crowed-in effects on private sector. According to Keynesian view, government could reverse economic downturns by borrowing money from the private sector and then returning the money to the private sector through various spending programs. High levels of government consumption are likely to increase employment, profitability and investment via multiplier effects on aggregate demand. Thus, government expenditure, even of a recurrent nature, can contribute positively to economic growth. On the other hand, endogenous growth models such as Barro (1990), predict that only those productive government expenditures will positively affect the long run growth rate.

In the neoclassical growth model of Solow (1956), productive government expenditure may affect the incentive to invest in human or physical capital, but in the long-run this affects only the equilibrium factor ratios, not the growth rate, although in general there will be transitional growth effects. Others have argued that increase in government expenditures may not have its intended salutary effect in developing countries, given their high and often unstable levels of public debt. The government consumption crowd-out private investments, dampens economic stimulus in short run and reduces capital accumulation in the long run. Vedder and Gallaway (1998) argued that as government expenditures grow incessantly, the law of diminishing returns begins operating and beyond some point further increase in government expenditures contributes to economic stagnation and decline

The foremost macroeconomic objective of governments in virtually all countries is the achievement of rapid and sustained economic growth with price stability. Increasing overall prosperity improves the lives of those able to partake in the system. An examination of Nigeria’s real GDP per capita between 1970 and 2010 shows that the country has been more or less stagnant - a situation reminiscent of the pre–industrial revolution era. Given a real GDP per capita of $679.7 in 1970, average real GDP for the period under review was $669.2. This trend poses a serious cause for concern when viewed against countries that were virtually at the same level of income in the past, which have made tremendous progress over time. The role of Government in promoting economic growth and development has been well established. Public investment in education affects economic growth directly - through the Keynesian multiplier effect - or indirectly - through the acquisition of knowledge which promotes productivity. During the past four decades (1970 – 2010) public education expenditure in Nigeria increased persistently in both absolute and relative terms. Total government expenditure on education as a ratio of total government expenditure ranged between 0.5 and 10.8 per cent.; resulting in an average of 5.7 per cent. Until 1980, the proportion of capital expenditure on education was above that of recurrent expenditure. However, since 1981, the reverse has been the case. In spite of the huge investment in education over this period, both the proximate target education and the ultimate objective, economic growth leave much to be desired. For instance, secondary school enrolment ratio in Nigeria has barely exceeded 40 per cent since 1970: this is before accounting for the quality of education. Similarly, economic growth (measured in real GDP per capita) was not only inconsistent, but averaged only 0.602 per cent. This observation tends to negate the numerous theories and empirical studies which have found a robust relationship between public investment in education and economic growth.

1. STATEMENT OF THE PROBLEM

The educational policy in Nigeria in under continuous change with change in political administration with aim to improve the educational system in Nigeria so as to enhance effective teaching and learning in a conducive environment. However despite the effort put together by the federal government of Nigeria there is little or no improvement in the education sector of Nigeria; this could be as a result of poor funding of the education sector, poor budgeting and budgetary policy implementation in Nigeria which may have effect on the economic growth of Nigeria. Lastly there have been series of studies on government education expenditure but none of these studies have been able to elucidate the nature of the relationship or impact of government educational expenditure on economic growth of Nigeria. It is to this regard that the study is based on the impact of government educational expenditure on economic growth of Nigeria from 1990-2017

1.3 AIM AND OBJECTIVES OF THE STUDY

The main aim of the research work is to determine the impact of government educational expenditure on economic growth of Nigeria. The specific objectives of the study are:

1. to determine the relationship between government educational expenditure on economic growth of Nigeria from 1990-2017
2. to determine the source of fund for the Nigeria education development from 1990-2017
3. to examine the educational expenditure processes in Nigeria from 1990-2017
4. to investigate the factors affecting government educational expenditure and economic growth of Nigeria from 1990-2017
5. to proffer solution to the above problem

1.4 RESEARCH QUESTIONS

The study came up with research questions so as to ascertain the above stated objectives of the study. The following research questions guide the objectives of the study:

1. What is the relationship between government educational expenditure on economic growth of Nigeria from 1990-2017?
2. What is the source of fund for the Nigeria education development from 1990-2017?
3. What are the educational expenditure processes in Nigeria from 1990-2017?
4. What are the factors affecting government educational expenditure and economic growth of Nigeria from 1990-2017?
5. What is the solution to the above problem?

1.5 STATEMENT OF THE HYPOTHESIS

H0: government educational expenditure has no significant impact on economic growth of Nigeria from 1990-2017

H1: government educational expenditure has significant impact on economic growth of Nigeria from 1990-2017

1.6 SIGNIFICANCE OF THE STUDY

The study on impact of government educational expenditure on economic growth of Nigeria will be of immense benefit to the education system of Nigeria. The study will explore government educational expenditure and its impact on the economic growth of Nigeria. The findings of the study will education the Nigeria government and policy makers on proper allocation education funds and effective budgeting. The study will also serve as a repository of information to other researchers that desire to carry out similar research on the above topic. Finally the study will contribute to the body of the existing literature on impact of government educational expenditure on economic growth of Nigeria

1.7 SCOPE OF THE STUDY

 The study will cover on the impact of government educational expenditure on economic growth of Nigeria from 1990-2017

1.8 LIMITATION OF THE STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work

1.9 DEFINITION OF TERMS

Government educational expenditure: government educational expenditure consists of current and capital educational spending which include public expenditure on educational institutions, educational administration as well as subsidies for private entities

Economic growth: Economic growth can be defined as the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.