Recent Study an Evaluation of the Growth-Maximizing Size of Government Expenditure in a Developing Economy: Evidence from Nigeria

Abstract

There has been a significant expansion in the size of government expenditure in most economies around the world. Many studies have shown that there is a negative relationship between government size and economic growth after a certain point of government participation in the economy is reached. This study, therefore, examines the optimal size of government (measured by overall government spending as a percentage of GDP) that maximizes economic growth in Nigeria between the periods 1985-2014. The overall results suggest that the optimal level of government spending is 17% according to the Scully log-linear model and 24% according to the quadratic model making a conclusive range of 17%-24%. The paper concludes that further expansion in the size of government, proxied by government expenditure, is encouraged for improved growth since current spending is below the range suggested by the result of the analysis. However, the study may not boost of same outcome if government expenditure is disaggregated and the government size is measure by the revenue generated.