The paper examines the interrelations between public expenditure and GDP using regression modelling, with data covering the period from 1966 to 2012. Augmented Dickey-Fuller and Phillips-Perron tests were conducted to determine if the time series of the variables were stationary. These models were further supplemented by the use of a Distributed Lag Model (DLM) to evaluate the degree and direction of interrelations between GDP and public expenditure. The findings provide empirical evidence supporting and validating the DLM, revealing that the growth of public expenditure is more influenced by current GDP rather than lagged public expenditure. However, the adjustment of actual to desired changes in public expenditure is slow and limited, spreading over a long period, reflecting the inefficiency and lethargic response of bureaucracy to change. This implies that public expenditure, particularly on investment, is spread over projects with longer gestation periods in areas such as health, education, transport, and communication. As the government embarks on an industrialization strategy, it is crucial to diversify spending to include not only long-term investment projects but also immediate consumption and social welfare programs. By implementing a strategic spending plan that addresses both short-term and long-term needs, the government can promote sustained economic growth and development. This approach will help build a more resilient economy, ensuring that immediate benefits are realized while also laying the groundwork for future economic progress.
Public expenditure, GDP, Simultaneous Equation Model and Distributed Lag Model