Effect of Government Expenditure on Manufacturing Sector Development in Nigeria; An Empirical Analysis

Abstract

Problem definition: This study used annual data from 1986 to 2023 to assess how government expenditure (spending) affected the development of Nigeria's manufacturing sector. Development of the manufacturing sector was gauged by manufacturing capacity utilization. The analysis broke down government spending into several categories, including capital education, capital health, recurring agricultural expenditures, recurring general administration expenditures, recurring defense and internal security expenditures, and transportation and communication expenditures. The study observed that economic backwardness persists in Nigeria despite the country's ongoing surges in government expenditure. Methodology/results: The multiple regression analysis was conducted using the Vector Error Correction Mechanism (VECM) technique of assessment. A long-term dynamic link between the elements of government spending or expenditure and manufacturing capacity utilization was found via the Johansen cointegration test which showed a long-run cointegrating relationship among the variables studied. The long-run outcome showed that while recurrent general administration expenditures and capital health capital expenditures both had positive and significant impacts on manufacturing capacity utilization, recurrent defense and internal security expenditures, capital education expenditure, and recurrent agricultural expenditures as well as recurrent transport and communication expenditures, had a negative and significant impact. Managerial implications: This research work developed a model to guide policy makers and the government on how best to adjust government expenditure in the direction that would foster industrial development in Nigeria and ony other developing economy. To well-utilize government expenditure viz-a-viz the development of the Nigeria manufacturing sector, the government should make sure that all of its expenditures, whether capital or recurrent are properly managed and carefully monitored during the implementation phase.