IMPACT OF CAPITAL AND RECURRENT EXPENDITURE ON ECONOMIC GROWTH IN NIGERIA A STRUCTURAL VECTOR AUTOREGRESSION ANALYSIS (1994-2022)

Abstract

This study examines the differential impacts of capital and recurrent expenditure on Nigeria's economic growth using a Structural Vector Auto - Regression (SVAR) model with data spanning from 1994 to 2022. The research investigates how these two primary categories of government spending affect Gross Domestic Product (GDP) growth, while accounting for their dynamic relationships with tax revenue. Using impulse response functions and variance decomposition analysis, the study finds that capital expenditure has a more substantial and immediate positive effect on economic growth compared to recurrent expenditure. The results indicate that by Period 10 of the analysis, capital expenditure shocks explain approximately 44% of the variance in GDP growth, while recurrent expenditure accounts for only 5.8%. Tax revenue shows cyclical behavior, with its effectiveness dependent on the efficiency of its utilization in both expenditure categories. The study reveals that while recurrent expenditure is necessary for maintaining government operations, its contribution to economic growth is relatively limited compared to capital investments. These findings suggest that policymakers should prioritize capital expenditure while maintaining efficient tax collection systems and controlling recurrent spending to optimize economic growth outcomes. The research contributes to the ongoing discourse on fiscal policy optimization in oil-dependent economies and provides evidence-based recommendations for achieving sustainable economic growth through strategic expenditure allocation.