Dysfunctional Association Between Public Expenditure Growth and National Consumption Cost: A Vector Error Correction Approach

Abstract

The management of public expenditure is crucial due to its effect on people’s standard of living. In line with this, this study investigated public expenditure growth and national consumption costs using a vector error correction approach. The objective is to determine the effect of capital and recurrent expenditure on the consumer price index. The dependent variable in this study is national consumption measured by the consumer price index, while the independent variable is public expenditure measured by capital and recurrent expenditures. An ex post facto research design was adopted, and data for the study spanning from 1981 to 2019 was sourced from the World Bank. Descriptive statistics, unit root tests, cointegration tests and vector error correction estimates were all conducted with the aid of EViews 9. Based on the results, we concluded that there is a positive but insignificant relationship between the consumer price index and capital and recurrent expenditures of the government in Nigeria. We recommend that Nigeria’s government should increase expenditure on projects that will improve the economy and the living standards of the people. Additionally, there is an urgent need for proper monitoring of allocations contained in the budget to ensure efficient and effective utilization of funds, as this will help to improve the standard of living of the people and improve the economy.