Government Capital Expenditure and Manufacturing Output in Nigeria: A Vector Error Correction Model Approach

Abstract

This study investigates the effect of Government Capital Expenditure in Nigeria from 1986-2023 utilizing time series data. The study adopted the Vector Error Correction technique for the estimation and analyses of results. The study employed Augmented Dickey Fuller test, Johanson Co-integration test, Vector Error Correction Model (VECM) and diagnostic test. The unit root test depicts that the variables under study (Government Capital Expenditure, inflation, Bank Credit and Manufacturing sector output) are stationary at first difference. The Johanson co-integration test reveals that the variables under study have long-run equilibrium relationship. Also, the long-run co-integrating vector result depicts that Government capital expenditure has negative effect on manufacturing output while Inflation and bank credit on deposit money banks have negative effect on manufacturing output. The results depict that the variables understudy have significant effect on the manufacturing output in Nigeria. Based on the findings, the study recommends that; government should invest in infrastructure like electricity plants, bridges, and roads to boost manufacturing output, attract investors, and improve living standards. Reducing inflation rates can also boost the sectors output and GDP.