ISSN 2239-978X ISSN 2240-0524 Journal of Educational and Social Research MCSER Publishing, Rome-Italy Vol. 4 No.5 July 2014 143 Is Government Capital Expenditure Productive? Evidence from Nigerian Manufacturing Sector (1971-2012) Njoku, A.C, Okezie A. Ihugba Idika, Ngozi Department of Economics, Alvan Ikoku Federal College of Education, Owerri, Imo State-Nigeria Doi:10.5901/jesr.2014.v4n5p143 Abstract This paper investigates the relationship between Nigeria’s capital expenditure and the growth of the manufacturing sector from 1971-2012. The ordinal least square method is used to show the relationship between capital expenditure and manufacturing output. Manufacturing Gross domestic product is taken as dependent variable while exchange rate, interest rate, political stability, recurrent expenditure, money supply, interest rate, index of energy consumption, credit to private sector, degree of openness and rate of growth of GDP as independent variables. All the variables used are integrated of order one except political stability which is a dummy variable. The results suggest that there is a positive relation between rate of growth of GDP, capital expenditure, money supply, openness of the economy, recurrent expenditure and manufacturing output in the country. In the light of the above, the papers recommends, among other things, government should increase the capital expenditure and reduce recurrent expenditure and also make sure that government funds are properly managed in a manner that it will raise the nation’s production capacity and accelerate economic growth. 1. Introduction Public expenditure plays an important role in aggregate economy in multiple dimensions. Usually, it is used to produce various public goods and services, to build and upgrade various types of infrastructure, the benefits of which are derived over subsequent years. It is also used by government to adopt various fiscal measures, such as transfer payments, to stimulate economic activities particularly during recessions. Government capital expenditure refers to government spending on investment goods. This means spending on things that last for a period of time. This may include investment in hospitals, Agriculture, Industries, Security, schools, equipment and roads. Some scholars have argued that increase in government spending can be an effective tool to stimulate aggregate demand for a stagnant economy and to bring about crowed-in effects on private sector. According to Keynesian view, government could reverse economic downturns by borrowing money from the private sector and then returning the money to the private sector through various spending programs. High levels of government consumption are likely to increase employment, profitability and investment via multiplier effects on aggregate demand (Chude and Chude, 2013). Thus, government expenditure, even of a recurrent nature, can contribute positively