The Effect of Government Expenditure on Stock Market Trends and Economic Growth in Nigeria
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Background of the Study
Government expenditure is a critical lever in shaping both financial market dynamics and broader economic growth. In Nigeria, policies implemented between 2023 and 2025 have focused on increasing public spending to stimulate infrastructure development, enhance social services, and support strategic economic sectors. These initiatives aim to not only boost stock market trends by improving investor sentiment and market liquidity but also to drive long-term economic growth through enhanced productivity and competitiveness (Ibrahim, 2023; Oladele, 2024). Increased government expenditure can lead to improved corporate profitability, higher employment rates, and better public services, all of which contribute to a more robust economic environment. However, the effectiveness of public spending depends on its efficient allocation and management. Misallocation of funds or inefficient spending can lead to fiscal deficits, inflation, and market volatility, thereby undermining the potential benefits of government expenditure. This study seeks to evaluate how government expenditure influences stock market trends and economic growth by analyzing market performance indicators alongside macroeconomic data. It will also explore the channels through which public spending affects investor confidence and economic productivity, providing insights into how fiscal policy can be refined for maximum impact.
Statement of the Problem
Despite increased government expenditure aimed at stimulating both the stock market and economic growth, Nigeria continues to face challenges in achieving the desired outcomes (Ibrahim, 2023). Although substantial funds have been allocated to infrastructure and development projects, inefficiencies in fund management, bureaucratic delays, and corruption have often diluted the positive impacts on the stock market and overall economic performance (Oladele, 2024). Investors have reacted to these inefficiencies with uncertainty, leading to periods of market volatility. Moreover, the benefits of increased public spending have not always translated into sustained economic growth due to the crowding out of private investment and inflationary pressures. The difficulty in isolating the impact of government expenditure from other economic variables further complicates the evaluation of these policies. This study aims to critically assess the effect of government expenditure on both stock market trends and economic growth, identifying the key factors that limit the effectiveness of public spending and recommending policy measures to enhance fiscal outcomes.
Objectives of the Study
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To analyze the impact of government expenditure on stock market performance in Nigeria.
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To evaluate the role of public spending in driving economic growth.
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To propose policy measures that improve the efficiency of government expenditure.
Research Questions
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How does government expenditure influence stock market trends in Nigeria?
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What is the relationship between public spending and economic growth?
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What policy interventions can enhance the positive effects of government expenditure?
Research Hypotheses
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H1: Increased government expenditure positively affects stock market trends.
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H2: Efficient public spending is significantly associated with higher economic growth.
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H3: Mismanagement of government expenditure negatively impacts both market performance and economic growth.
Scope and Limitations of the Study
This study examines government expenditure and its impact on stock market trends and economic growth in Nigeria from 2023 to 2025, drawing on data from financial markets, government reports, and economic analyses. Limitations include data reliability issues and the influence of external economic factors.
Definitions of Terms
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Government Expenditure: The total public spending on goods, services, and development projects.
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Stock Market Trends: Patterns and movements in stock market performance over time.
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Economic Growth: The rate at which a nation’s economy expands, typically measured by GDP.
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Fiscal Efficiency: The effective allocation and management of public funds.
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