PUBLIC SECTOR EXPENDITURE AND INFLATIONARY SPIRAL IN NIGERIA

PUBLIC SECTOR EXPENDITURE AND INFLATIONARY SPIRAL IN NIGERIA

ABSTRACT

This research attempts to analysis and carry out on empirical investigation on the relationship between public sector expenditure and inflationary spiral in Nigeria from 1970 to 2010.

The estimation techniques used were based on ordinary least square (OLS) method. Inflation is the depended variable, while others such as money supply (MS) Budget Defend (BD) Government expenditure (GOVEX) Exchange Rate (EXR) are independent variables.

The data used were sources from secondary sources in which the relevant test parameters were tested. Based on this research finding, pertinent recommendation such as the deficit financing reflect much supply on money that is in most instance not backed with production of tangible input to the economy.

This would be made on how to certain the spending pattern of government in order not to further accelerate inflationary spiral in Nigeria.

TABLE OF CONTENTS

Page

Title

Certification

Dedication

Acknowledgement

Abstract

Table of Contents

CHAPTER ONE:         INTRODUCTION       

  • Background to the Study
  • Statement of the Problems 4
  • Objectives of the Study
  • Justification of the Study
  • Hypothesis 7
  • Scope of the Study
  • Organization of the Study

 CHAPTER TW0: LITERATURE REVIVE AND THEORETICAL

                             FRAMEWORK

2.1     Literature Review and Theoretical Framework

2.2.    Review of Empirical Literature

2.3.    Review of Theoretical Frame Work

2.4.     Inflation

2.5.    Studies from Developed Countries

2.6     Consumer Price Index (CPI)

2.7.    Implicit Price Index

CHAPTER THREE: METHODOLOGY                                     

3.1     Introduction

3.2     Model Specification

3.3     Estimation Technique

3.4     Evaluation of Parameters Estimates

3.5     Economic Criterion

3.6     Economic/ Statistical Criterion

3.7.    Sources of Data

 CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS                                                                     

4.1.    Introduction

4.2.    Data Presentation

4.3.    Presentation of Regression Result

4.4     Standard Error Test

4.5     Analysis of Regression Result

CHAPTER FIVE: SUMMARY, CONCLUSION AND POLICY

                             RECOMMENDATIONS

5.1.    Summary

5.2.    Conclusions

5.3.     Policy Recommendations

Bibliography

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

          An outstanding feature of economic management in developing countries, since the last three decades is the large scale expansion of the public sector.

This reflected not only in the ever – growing state of the public sector in gross Domestic Product (GDP) of these countries of which Nigeria is out excluded. But also the ever evidencing range of public sector activities. By the term public sector, mean that pact of the national economy for which the government has some direct responsibility. It include Federal Government, State Government, Local Government, Public Corporation and other public enterprise activities.

Interest in the behaviour of the public sector because the government decision effect individuals and institution in many different ways. The decision are concerned with public spending, taxation and various rules and regulation that have an influence on social welfare.

In a national economy, the market mechanism cannot perform all these function required to attain an efficient and equitable allocation of these function required to attain an efficient an equitable allocation of resources  therefore, there is admire need for a public sector because of its promotional and protective function. The public sector as a single organization and is the largest employer of the work force in a country. This thus have considerable impact on the level of wages, productivity and investment in the economic system.

The Nigeria public sector consists of three separate levels of government whose status, power and relationships are defined and guaranteed by the constitution, they include, the Federal Government, the State and Local Governments. Allocation of resources of the satisfaction of these separate level of government is growing higher and the level of government is lower, thereby leading to deficit financing, the aftermost of the above is and inflationary spiral of economy.

Inflation is defined as persistence rise in the general price level. However, the price of all goods and services may not rise simultaneously or by the same proportion. A once and for all rise in the general price level may not connote an inflationary phenomenon, but if this situation is sustained, inflection poses serious consequence for macro-economy stability.

Inflation, in most developing countries started to be on the increase immediately after the oil price shorts of the 1970’s. since then inflation has been one of the major macro –economic problem which militate against the development effort in those countries, where Nigeria is not an exception, in which such a country that is inflated by the problem of inflation today will sustain a serious economic injury,

It has been confronted with the consumer price index (CP) which rose from single digit 7.2 in 1960 to a double digit of 10.8 in 1970 (Central Bank of Nigeria (CBN) Statistical Bulletin). This would be attributed to the Nigeria civil war that plagued the country between 1976 and 1970. inflation in Nigeria became a chronic problem after the economic structural adjustment programme (SAP) of 1886. this periods experienced and stole experiencing the interest inflationary rate in the history of Nigeria economic development. The policy brought imported inflation into import duties was reflected in the price of the commodities which they continue to be in the increase and cause a lot of ripples and uncertainly in the economy. The uncertainty has affected the decision of  expenditure, savings and investment along sides with allocation of resources (Falayes, 1886).

Inflation has also caused serious discomfort for consumers, investors, producers and the government. This therefore, emphasis the need for urgent responses and solution  to the growth of Nigeria economy, because of the persistent growth he the public sectors, the government is force to increase the provision for goods and services needed for fastening and developing the various sector even under higher exchange rate resulting in a inflationary spiral in the Nigeria economic.

 1.2     STATEMENT OF THE PROBLEM

One of the macro – economic induces that plague many developing countries is inflation. As it debars the pace of growth in these countries on one hand, it tends to increasing the rate of growth of the other countries on the other hands, but a case Nigeria in new of the above is not yet established.

As of result, not only government that is worried about this mortal crises, but also the people who have learnt to bear with the adverse effect in this. Standard of living. However, government on its part has been putting in place of number of policy reforms such as the stabilization measure as reflected in the economic stabilize. Act of April 1982, Structural Adjustment Programme (SAP) of July 1986, e.t.c. Not with standing in spite of the aforementioned measured, inflation still serve to overflow its bank thus, which it made government to put in place these rectifying measures, people have hand their standard of living greatly affected.

It is in this light that this research study is empirically investigating the public sector expenditure and inflationary spiral in Nigeria, and into the way of improvement and solution of all which will come up in thin in the course of this study.

 

1.3     OBJECTIVE OF THE STUDY

          The main objective of the study is to empirically examine the relationship between the public sector expenditure and inflationary spiral in Nigeria.

While specific objective are to:-

  1. Analyze the cause and effects of inflation
  2. Investigate the relationship between public sector expenditure and inflationary spiral in Nigeria.
  • Make policy suggestion based on the implication of the result to the effect of inflation and public sector expenditure.

 

1.4     JUSTIFICATION OF THE STUDY

          The result of the study is to reveal the degree of the effect of inflation in public sector expenditure, the relationship that exist between inflation and public sector and proffer certain recommendation to the above via improving the standard o living of people.

The result of this study will established and proffer suggestive solution to the problem of inflationary spiral in Nigeria.

 

1.5     HYPOTHESIS

          The hypothesis writer below will be tested:

Ho:    Inflation does not have adverse effect on public sector expenditure

Hi:     Inflation has adverse effect on public sector expenditure

 1.6     SCOPE OF THE STUDY

          The scope of the study is limited to the analysis of  government spending as prosy for public sector expenditure and inflationary spiral in Nigeria under the year 1981 -2010 (30 years.)

 1.7     ORGANISATION OF THE STUDY

The study is divided in to five chapters. Chapter one covers the background of the study, chapter two cover both the theoretical and empirical literature that are related to the study. Chapter three deals with the methodology to be employed in the courses  of the study. Chapter four deals with the analysis of the result whole chapter five cover the summary, conclusion and Policy recommendations.  

 

 

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