Public Expenditure and Inflation Rates in Nigeria (1990-2022)

Abstract

This study examines the impact of public expenditure on the inflation rate in Nigeria from 1990 to 2022. The paper utilised aggregate annual time series data of the Nigerian economy. The data were analysed using unit root test, bound co-integration test and short-run error correction model test methods. The test for stationarity using Augmented Dickey-Fuller (ADF) showed that all the variables were stationary after first differencing, ie integrated of order (i). The Pesaran bound Co-integration employed to test for long-run equilibrium relationships among the variables indicates no association between PCS, PRS, MS, EXHR and INF. The short-run (parsimonious ECM) result reveals that public capital spending, public recurrent spending, money supply and exchange rate have a positive relationship with inflation in Nigeria. From the results, public expenditure affects the inflation rate in Nigeria in the short run. Based on these findings, the paper recommends, amongst others, that the government should reduce public expenditure variables in the short run to control inflationary pressures in the Nigerian Economy. Also, the government should increase public expenditure variables in the long run to boost productive areas and enhance growth and development in the Nigerian Economy.