ESTIMATING CASAULITY BETWEEN PUBLIC EXPENDITURE, INFLATION AND NATIONAL INCOME: THE CASE OF NIGERIA

This study investigates econometrically the existence of long-run causal relationship between public expenditure, inflation and national income over the period 1981-2013 using annual data for Nigeria obtained from 2015 statistical bulletin published by Central Bank of Nigeria. The econometric methodology employed was the Cointegration and Granger Causality tests. The stationary properties of the series were examined using Augmented Dickey-Fuller (ADF). The results revealed that none of the series was stationary at levels, but stationarity were attained at first and second difference at 5% significant level. The results show that long run equilibrium relationships exist among the variables. Granger Causality test reveals that there was a bi-directional causality running between government capital expenditure (CAPX) and national income. It also shows that there is a feedback between government recurrent consumption expenditure and national income. Therefore, it is suggested that the proportion of capital expenditure to the construction sub-sector be increased so as to take advantage of the sub-sector’s capacity to generate short-run multiplier effect.