How Does Economic Growth Respond to Public Infrastructure Expenditure Shocks? Evidence from SVAR in Nigeria

Abstract

This paper investigates the economic growth response to public infrastructure expenditure shocks in Nigeria. Quarterly time-series data spanning 1981:Q1 to 2019:Q4, sourced from the Central Bank of Nigeria Statistical Bulletin are used in the study. The structural vector auto-regressive method following Blanchard and Perrotti’s (2002) with Augmented Dickey-Fuller, Phillips and Perron, and Kwiatkowski-Phillips-Schmidt-Shin stationarity tests are employed in the paper. The results of the stationarity tests showed that all the model’s variables namely; real gross domestic product, public infrastructure expenditure, and government revenue became stationary after their first difference. However, the study extracted and classified the variance decomposition and impulse response functions into three regimes namely; short, medium, and long-term respectively. The findings reveal that in the short term, 10.5% variations in economic growth were associated with public infrastructure expenditure shocks while in the medium term, 29.7% variations in economic growth were associated with public infrastructure expenditure shocks, and in the long term, 42.6% variations in economic growth were associated with public infrastructure expenditure shocks in Nigeria. Economic growth responses to public infrastructure expenditure shocks were positive and statistically significant in the three regimes of short, medium, and long-term respectively. The study recommends that the federal government should concentrate more on reforms and spending policies that will result in the best possible policy and ultimately high and sustainable growth in Nigeria.