Nexus between Government Expenditure, Governance, and Economic Growth in Nigeria

The cost of governance in Nigeria is often criticized as being excessively high, while others argue that the core issue lies in poor governance. Despite Nigeria's abundant human and natural resources, economic growth remains stagnant, failing to benefit its citizens. This study explores the nexus between government expenditure, governance, and economic growth in Nigeria. The primary objective is to assess whether a significant direct relationship exists between total government expenditure and governance indicators influencing economic growth in the country. Utilizing time-series data from World Bank governance indicators and the Central Bank of Nigeria (CBN), the study employs the Structural Equation Model (SEM) path-diagram technique via the maximum likelihood method to estimate the relationships among the variables of interest. Post-diagnostic robust tests validate the findings. The results reveal that increased political instability, violence, and terrorism are directly associated with rising government expenditure and inversely related to economic growth. This suggests that these factors elevate government spending while hampering economic growth. Conversely, government effectiveness is inversely related to total government expenditure and positively impacts economic growth, indicating that improvements in governance reduce expenditure and foster economic progress. Similarly, the rule of law is inversely related to government expenditure and positively associated with economic growth, implying that strengthening the rule of law curtails government spending and enhances economic performance. Additionally, the correlation analysis shows a positive relationship between corruption control and the rule of law, suggesting that enforcing the rule of law can effectively combat corruption in Nigeria.