In and services produced within a country

In recent times, there has been a growing concern on the under developing nature of Nigeria economy on
the global economic growth in totality as it hindered the pace of her economic development. However, Nigeria
as one of the developing countries of the world, has adopted a number of
measures aimed at improving growth and development in the domestic economy
which one of such measures has necessitated the demand for Foreign Direct
Investment (FDI) into the country (Ugwuegbe, Okore, & Onoh, 2013).

Foreign
Direct Investment is an international capital flow in which firms in a country creates
a subsidiary in another country. It involves the acquisition rights and
transfer of resources in host country. FDI and Economic Growth are treated as
endogenous variables and are causes of each other and they have endogenous
relationship (Ugwuegbe et al.., 2013). Abbas, Akbar, Nasir,
Ullah, and Naseem, (2011) opine that FDI is the net inflows of investment in an
economy of a country. It is the sum of equity capital, reinvestment of
earnings, long term and short term capital. It usually involves participation
in management, joint ventures, transfer of technology and experience. GDP refers
to the market value of all final goods and services produced within a country
in a given period. It is often considered an indicator of growth and standard
of living for a country. Inflation when the price of most goods and services
continues to rise upward. It is measured by the consumer price index (CPI).

Foreign Direct Investment (FDI) has
emerged as the most important source of external resource flows to developing
countries over the years and has become a significant part of capital formation
in these countries, though their share in the global distribution of FDI
continued to remain small or even declining (Khan, 2007 cited in Ugwuegbe
et al.., 2013).
The role of FDI has been widely
recognized as a growth-enhancing factor in the developing countries.

Government expenditure no doubt is an important instrument
for a government to control the economy of a nation. Economists have been well
aware of the effects in promoting economic growth. Anyway, the general view is
that government expenditure notably on social and economic infrastructure can
be growth enhancing although the financing of such expenditure to provide
essential infrastructural facilities including transport, electricity,
telecommunication, water and sanitation, waste disposal, education and health
can be growth retarding (Olukayode, 2009 cited in
Olayungbo, 2013). Abbas et al.., (2011) suggested that
excessive spending in public
capital expenditure can reduce
the positive impact of FDI on
economic growth.

However, Ajudua and Devis (2015) opines that
government expenditure and foreign direct investment (FDI) support the growth
objectives of all economies worldwide. Ke-Young and Hermming (1991) cited in
Ajudua and Devis (2015) posited that government expenditure is one of many
interventional strategies by the government to compensate for failed
competitive market and secure equity in distribution. In Nigeria it thus
becomes imperative to study government expenditure and FDI flow in order to
ascertain the extent to which allocation of expenditure to sectors and the FDI
inflow in the country contributes to increased output and aggregate demand as
the size and structure of government expenditure will determine the pattern and
form of growth in output of the economy (Ajudua and Devis, 2015).

Imoudu (2012) however opine that
in Nigeria, there is that popular and commonly held view that manufacturing
multinationals have done greater lower than good to the host communities as a
result of their operations in these communities wheel has led to loss of
economic and social quality and environmental degradation.  However
as FDI is seen as a stimulant for productivity growth, capital formation,
technology transfer, employment creation, export promotion, some school of
thought such as the Marxist have laid emphasis on such benefit in the host
economy (Gul  and Naseem, 2015). They
posited that FDI hindered total freedom and economic growth of the host nation.
To them, FDI is linked to the perpetual dependence on developed countries by
poor countries; local industries are outcompeted, their productive activities
in most cases depend on imported raw material thus the multiplier effect is
lower than desired and it also implies increased income remittance abroad
leading to capital flight (Ezirim 1996 cited in Ajudua and Devis, 2015).

Ajudua and
Devis (2015) further states that Nigeria expenditure goals have been quite
ambitious and resulted in high spending. This calls for thorough recasting of
priorities in the federal expenditure programme. Government expenditure has consistently
exceeded revenue for quite some time now and the symptom of such fiscal
imbalance is budget deficits (Olaiya, Nwosa and Amassoma, 2012). While
deficit is not new in the country’s history, the size of the deficit has become
a cause of concern. It is however pertinent to note that much of the debates
over the deficits has been more related to the effect of unacceptable large
deficits rather than the cause of deficits. Also faced with social and
political unrest in recent years in the country and the continuously high
insecurity situation in the country, and with the contrasting views of scholars
on the position of FDI in a developing economy, it thus becomes important to
investigate government expenditure in Nigeria and to evaluate the standpoint of
FDI in the country (Olaiya et al.., 2012).

More so, Ajudua and Devis (2015) stated that the role of
government expenditure in determining income level and distribution is now well
recognized. Keynes posited the use of government expenditures in maintaining
macroeconomic stability. He suggested that government expenditure can be used
to raise aggregate demand and thereby get the economy out of recession (Ahuja
2013). According to him, an increase in government expenditures will have a
multiplier effect on the national income leading to a more than proportionate
increase in the national income. The variation in government expenditures also,
does not only ensure economic stability, but also generate and accelerate
economic growth and promote employment opportunities thereby alleviating
poverty (Ahuja 2013). However, excessive government expenditures in most
developing countries have led to high budget deficit and cases of debt
problems.

Prior studies on accounting
literature have concentrated on FDI and its effect on total economic development
of one country or the other. For instance, Abbas et al.., (2011) find that growth of any country depends upon
investments, increasing assets and infrastructure. Likewise, Imoudu (2012)
revealed that that the impact of FDI disaggregated into several components
namely: agriculture, mining, manufacturing, telecommunication and petroleum
sectors are very little with the exception of the telecom sector which has a
promising future for the economy especially in the long run.  Ugwuegbe, Okore, & Onoh (2013) also found out that FDI has a
positive and insignificant impact on the growth of Nigerian economy. Gul
and Naseem (2015) also revealed that FDI and Domestic capital are also throwing
light on positive aspects of variables for accelerating economic growth. A closer
examination of these previous studies reveal that conscious effort was not made
to take care of the fact that more than 60 percent of the FDI inflows into
Nigeria is made into the extractive industry.  It is in view of the above that the study
tends to find out the effect of FDI on government expenditure in a Pre and
Post-Deregulation period in Nigeria.

The
study would be guided by a research hypothesis and would study the trends in
foreign direct investment and its effect on government expenditure in Nigeria
between the periods 1970 – 2016.

H0:
There exist no relationship between foreign direct investment and current
expenditure in Nigeria.