A Vector Error Correction Modelling of the Composition of Government Spending and the Real Exchange Rate in Nigeria

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Abstract: The main objective of this study has been to empirically investigate the relationship between government expenditure and the Real Exchange Rate  in Nigeria . Using data covering 1970 to 2010, the Vector Error Correction and Cointegration tests results established a long run relationship among the components of government expenditure and the Real Exchange Rate. The result showed that government investment has delivered more productivity gains in the non-tradable sector than in the tradable sector, while an increase in government consumption increased the relative demand for non-tradable. The government should thus shift attention to the expansion of the tradable sector.

Key words: Government Consumption, Government Investment, Real Exchange Rate and Vector Error Correction



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