CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The Nigerian economy has been a victim of growing domestic insecurity since 1999. The domestic insecurity manifested in the form of religious, political, ethnic, labour and educational crisis. No country can achieve any meaningful development without adequate national security. The provision of national security is, therefore, one of the major concerns of government of a country, developing as well as developed.
National security involves the protection of the domestic territory and citizens, and enforcement of law and order by security agencies such as the army, air force, the navy, police force, civil defense, legal vigilant, etc. The classical economist, particularly, Adam Smith acknowledged the importance of national security by stressing that the two important duties of the government of a country are the protection of the society from the violence and invasion of other independent society and the protection of every member of the society (Adam, 2003). This establishes the economic need of security in the country. Security of person and property from both foreign and domestic threat is essential for the operation of the market system and serve as an incentive to invest and innovate. In a situation where peace and security are lacking, there will be distortion in economic activities. The local and foreign investors will not be willing to invest in such economy and this will lead to a dearth in capital inflow.
In view of the importance of national security in national economic management, economic growth and development, sizeable quantity of society’s resource had been allocated to the maintenance and equipping of security personnel. Hence, defense expenditure is an importance part of government expenditure. Defense Expenditure helps in enhancing economic growth of a country. De Grass (1993) asserts that defense spending can create job, increase purchasing power and promote economic growth. In the same vein, Benoit (1973, 1978) had argued that through increase in military expenditure, economic growth can be promoted by an increase in human capital capability of the workforce through provisions of education where military industries are provided with available skill. There are also externalities in defense spending that are crucial to economic growth like the provisions of road infrastructure which can be used by both military and civilians (Barro and Sara-I-Martin, 1995).
Consequent upon the importance attached to security in governance and by extension, in attainment of economic development, governments of many countries of the world have expended huge national resources on defense. Available data show that in the 2001, the world defense expenditure was estimated at $8.39billion (SPIRI, 2010). This estimate accounted for 2.6 % of the World Gross Domestic Product (GDP) and World average per capita of $137. This was contained in Stockholm International Peace Research Institute Yearbook (SPIRI) Yearbook, 2002. Defense Spending has assumed a great significance, for example, the world defense expenditure in 2003 was $9.56 billion which was an increase of about 11% in real terms, from previous year. This remarkable rate of increase was primarily due to the massive spending on war in Irag by United States of America (USA). According to Brewpong (2002), countries within the highest income minus industrialized nations had the highest defense spending while developing countries particularly those in Africa, had the heaviest debt burden and low defense spending.
In Nigeria, the increasing wave of insecurity posed by the activities of Boko Haram insurgences, ethnic militia, the problem of kidnapping, for which the kidnappers demanded huge amount of money as ransomed from their victims before releasing them, had been a major threat to lives and property, investment and economic growth. There were also serious conflicts between Christians and Muslims in Kaduna and Plateau states leading to heavy loss of lives and property. All these have led to sharp increase in defense expenditure. For example, the defense expenditure of Nigeria which was N6.60 billion in 1995 rose to N43.40 billion in the year 2000. It rose to N71.67 billion and N198.71 billion in 2005 and 2010 respectively. In the year 2014 and 2015, the defense expenditure was N274.53 billion and N330.59 billion. In 2016 and 2017, the defense expenditure was N380.17 billion and N361.92 billion respectively (CBN, 2018). Increased defense expenditure is certainly not without effect on resource allocation and economic growth. There is diversion of resources that would have been used for other developmental needs. The money used for military equipment can be used for building hospitals, schools and construction of roads and dams or for providing civilian goods. However, through defense expenditure, government protects the economy against external aggression and enhances the stability required for economic growth and development. Besides, defense expenditure adds to societal welfare.
1.2 Statement of the Problem
Nigeria, as a country, has witnessed series of insecurity since its independence to date. The first major one was the civil war which took place between 1967 and 1970. Available data have shown that Nigeria’s budgetary spending on defense and internal security rose during the period (CBN, 2011). The second major insecurity witnessed in the country is that of militants in the Niger Delta. Nigeria lost total revenue of about $1 billion daily as a result of the activities of the aggrieved youth in the area (Douglas, 2012). There had been other forms of internal crisis (religious, ethnic, Coup d’e’tat, political and economic instability) which took place in the country. These internal crises must be overcome to pave way for rapid economic growth and development. In order to curb internal crisis, for example in 2008 government introduced an amnesty programme with the aim of ending the insecurity in the oil region. The programme includes the following: Firstly, to put the aggrieved youth on monthly stipend. Secondly, to send some of the youths in the region to schools for apprenticeship within and outside Nigeria. Thirdly, the programme also include the establishment of the Ministry of Niger- Delta Affairs with core mandate of providing basic amenities to all the states within the region; and finally, to give out the security of Nigeria oil exploration activities to the leaders of the militants (Kuku, 2012). The programme itself has engulfed huge financial resources. However, as a result of the amnesty program, Nigeria had enjoyed a relative stability until in 2009 when some youth in North Eastern Region of the country (Boko-Haram) came with an ideology that western education is prohibited. Since then, Nigeria has witnessed massive destruction and losses in terms of lives and property. It is estimated that about fifteen thousand (15,000) people lost their lives and property worth trillions of Naira was destroyed as a result of the insurgency (Oyobode, 2013). Recently, the increasing clashes between farmers and pastoralists have become worrisome, especially in Wetland areas of the Middle Belt, North Central Nigeria. The ongoing conflict between farmers and cattle herders is costing Nigeria at least $16 billion in potential revenues annually. Farmers have accused the Fulani herdsmen of failing to control their cattle and of damaging crops. In turn, the Fulani accuse farmers of stealing their cattle. In June 2018, over 200 people were killed and 50 houses were burnt in clashes between farmers and Fulani cattle herders in plateau state (Wikipedia, 2018).
The increasing wave of insecurity posed by the activities of Boko Haram insurgences, ethnic militia, farmers and cattle herders insurgences has resulted in increase in defense expenditure for some years in Nigeria. The need to increase defense labour force and improve on their skill in order to reduce the growing insecurity has continued to increase defense allocation yearly. For example, the defense expenditure of Nigeria which was ₦6.60 billion in 1995 rose to ₦43.40 billion in the year 2000. It rose to ₦71.67 billion and ₦198.71 billion in 2005 and 2010 respectively. In the year 2014 and 2015, the defense expenditure was ₦274.63 billion and ₦330.59 billion respectively. In 2016 and 2017, the defense expenditure was N380.17 and N361.92 respectively (CBN, 2018). It is this raising trend in defense expenditure that has motivated this study. There is controversy on the impact of defense expenditure on the economy as some economists argue that defense expenditure impact positively while others argue that defense expenditure impact negatively on economic growth. The increase in defense expenditure has been a threat to other sectors of the economy as the resources used for defense purposes would have been used to improve other sectors such as Health, Education, Agriculture, Manufacturing, etc of the country. It is against this background that this study is carried out to examine the impact of defense expenditure on the Nigerian economic growth (1981 – 2018).

1.3 Objectives of the Study
The objective of this study is to examine the impact of defense expenditure on the Nigerian economic growth using data for the period (1981-2018)
1.4 Research Question
The research question of this study is:
What is the impact of defense expenditure on economic growth in Nigeria?

1.5 Research Hypothesis
In line with the objective and research question, the research hypothesis of this study is:
H0: Defense expenditure has no significant positive impact on the economic growth in Nigeria
H1: Defense expenditure has significant positive impact on the economic growth in Nigeria.
1.6 Significance of the Study
Economic growth thrives under atmosphere of security, freedom and peace among other variables. Defense Spending enhances security, freedom and peace under which an economy can flourish better. Defense spending provides employment that empowers people creating purchasing power that has a multiplier effect. The impact of defense is the provision and sustenance of peace for the attainment of economic growth.
Finding from the study will be of immense benefit in a number of ways and to different groups of people. It will be relevant to person in the society and it will serve as a source of information (data) to students in their field of study.