Funding the future: Nigeria's battle against poverty through government expenditure

Abstract

This study investigates the effectiveness of government expenditure in combating the incidence of poverty in Nigeria from 1981 to 2022, employing a Vector Error Correction Model (VECM) framework. The research analyzes the relationship between poverty incidence and key variables including government expenditure, GDP per capita, Agricultural Credit Guarantee Scheme Fund (ACGSF), and gross enrollment ratio in secondary education. Using time series data and cointegration analysis, the study reveals a significant long-run relationship between government expenditure and poverty reduction, with a 1 % increase corresponding to a 0.05 percentage point reduction in poverty incidence. However, the error correction mechanism indicates a notably slow adjustment process (-0.000376), suggesting structural impediments to poverty reduction efforts. While government expenditure demonstrates significant poverty-reducing effects in the long run, the analysis reveals weak short-run dynamics and limited effectiveness of other policy instruments. The study finds evidence of a self-reinforcing poverty cycle, with past poverty levels significantly influencing current poverty rates. These findings underscore the need for more comprehensive and sustained policy interventions, particularly in addressing structural barriers to poverty reduction and improving the efficiency of government expenditure allocation in Nigeria's socioeconomic development initiatives.