Please enter verification code
Modelling the Behaviour of Government Spending and Economic Growth in Six ECOWAS Countries (1981-2013)
International Journal of Economics, Finance and Management Sciences
Volume 5, Issue 1, February 2017, Pages: 34-56
Received: Aug. 12, 2016; Accepted: Aug. 22, 2016; Published: Jan. 4, 2017
Views 4619      Downloads 203
Matthew Abiodun Dada, Department of Economics and Business Studies, College of Social and Management Sciences Wellspring University, Benin City, Nigeria
Article Tools
Follow on us
This study examined the behaviour of government spending and economic growth in six ECOWAS countries using ARDL and UVAR-based modified granger non-causality approach. Secondary data covering1981-2013 were sourced on key variables from (WDIs) 2014 edition. The result of Johansen and ARDL bound test suggests a long run equilibrium relationship between government spending and economic growth in all the six countries. The result of the modified ARDL indicates that variables adjust to a long run equilibrium path after a short run deviation. The ECM coefficient is negatively signed and significant at 5 and even at 1 percent in line with a priori expectation. This provides strong support for the long run equilibrium relationship. However, the speed of adjustment to long run equilibrium path varies across the six countries. The causality test result suggests that bidirectional causality exists for Gambia, Cote d’Ivoire, Senegal and Burkina Faso while unidirectional causality running from economic growth to government spending was found for Nigeria and Ghana. There is no support for the feedback hypothesis. Policy makers in this region are enjoined to caution on the call for fiscal consolidation but rather consider the fiscal space alternative to advance the developing economies in this sub-region. The study therefore concluded that there is a cause-effect relationship between government spending among other variables and economic growth in the developing ECOWAS countries.
Government Spending, Economic Growth, ARDL Bound Test, Toda and Yamamoto Modified Granger Non-causality, Error Correction Models, ECOWAS Countries
To cite this article
Matthew Abiodun Dada, Modelling the Behaviour of Government Spending and Economic Growth in Six ECOWAS Countries (1981-2013), International Journal of Economics, Finance and Management Sciences. Vol. 5, No. 1, 2017, pp. 34-56. doi: 10.11648/j.ijefm.20170501.14
Copyright © 2017 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License ( which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Abdullah, H. A. (2000). The Relationship between Government size and Economic Growth in Saudi Arabia. Journal of Administrative Science, 12(2): 173-191.
Abizadeh, S. and Gray, J. (1985). “Wagner’s Law: A Pooled Time-Series Cross-Section Comparison,” National Tax Journal, 88, 209-218.
Abu, N. and Abdullahi, U. (2010). Government Expenditure and Economic Growth in Nigeria, 1970-2008: A Disaggregated Analysis. Business and Economics Journal.
Adam, C. and Bevan, D. (2005). Fiscal deficits and growth in developing countries. Journal of Public Economics, vol. 89, no. 4, pp. 571-597.
Adeoye, T. (2006). Fiscal Policy and Growth of the Nigerian Economy: An Empirical Perspective. Ibadan: NISER monograph series No. 3.
Afxentiou, P. C., and Serletis, A. (1996). “Government Expenditures in the European Union: Do They Converge or Follow Wagner’s Law?” International Economic Journal, 10, 33-47.
Agiobenebo, T. J. and Onuchukwu, O. (2000). “An Econometric Study of Public Investment Behavior in Nigeria (1970-1996)”. Social science study group monograph series No. 5 Port Harcourt: Emhai Printing and Publishing Company.
Aigbokhan, B. E. (1996). “Government Size and Economic Growth: The Nigerian Experience”, in “Beyond Adjustment: Management of the Nigerian Economy”. Proceedings of the 1996 annual Conference of the Nigerian Economic Society.
Akinlo, A. E. (2013). “Government Spending and National Income Nexus for Nigeria”, Global Journal of Business Research, 7(1) pp. 33-41.
Akpan, N. I. (2005). Government Expenditure and Economic Growth in Nigeria: A Disaggregated Approach. CBN Economic and Financial Review. 43(1).
Alfaris, A. F. (2002). Public Expenditure and Economic Growth in the Gulf Cooperation Council Countries. Applied Economics, 34, 1187-1193.
Al-Yousif, Y. (2000). Does Government Expenditure Inhibit or Promote Economic Growth: Some Empirical Evidence from Saudi Arabia. Indian Economic Journal, 48(2).
Ansari, M. I., Gordon, D. V., and Akuamoach, C. (1997). “Keynes versus Wagner: Public Expenditure and National Income for Three African Countries,” Applied Economics, 29, 543-550.
Aregbeyen, O. (2006). “Cointegration, Causality and Wagner’s Law: A Test for Nigeria, 1970-2003”. Central Bank of Nigeria Economic and Financial Review, 44 (2).
Aschauer, D. A., (2000). “Public Capital and Economic Growth: Issues of Quantity Finance, and Efficiency,” Economic Development and Cultural Change, 48(2). 391-406.
Babatunde, M. A. and Adefabi, R. A. (2005). Long Run Relationship between Education and Economic Growth in Nigeria: Evidence from the Johansen’s Cointegration Approach. Paper presented at the Regional Conference on Education in West Africa: Constraints and Opportunities Dakar, Senegal, November 1st-2nd. Cornell University/CREA/Ministèrede l’Education du Senegal.
Babatunde, M. A. (2007). A bound testing analysis of Wagner’s law in Nigeria: 1970-2006. Proceedings of Africa Metrics Conference;
Bakare, A. S. and Olubokun S. (2011). Health Care Expenditure and Economic Growth in Nigeria: An Empirical study. Journal of Emerging Trends in Economics and Mnagement Sciences (JETEMS) 2(2): 83-87 Copy right Scholarlink Research Institute Journals, 2011(ISSN; 2141-7024)
Barro, R. and Sala-i-Martin, X. (1992). Public Finance in Models of Economic Growth. Review of Economic Studies, 59: 645-661.
Barro, R. (1990). Government Spending in a Simple Model of Endogenous Growth. Journal of Political Economy, 98(5):103-125.
Barro, R. (1991). Economic Growth in Cross-Section of Countries. Quarterly Journal of Economics, 106(2): 407-443. Bhatia, H. L. (1982). Public Finance. New Delhi: Vikas publishing.
Biswal, B., Dhawan U. and Lee H. Y. (1999). Testing Wagner Versus Keynes using disaggregated public expenditure data for Canada. Applied Economics, 31. 1283- 1291.
Blejer, M. I. and Khan, M. S. (1984). “Government policy and private investment in developing countries”. IMF Staff Papers, 31(2): 379-403.
Bose, N., Hague, M. E. and Osborn, D. R. (2007). Public Expenditure and Economic Growth; A Disaggregated Analysis for Developing Countries. The Machester School, 75-85, 533-556. Boston: McGraw Hill Inc.
Brennan, G. and Buchanan, J. (1980). “The power to tax: Analytical foundations of a fiscal Constitution”. Cambridge: Cambridge University Press.
Brons, M, Groot, H. and Nijkamp P, (1999). Growth Effects of Fiscal Policies. Tinbergen Discussion Paper, Amsterdam: Vrije Universiteit.
Buchanan, J. M., Wagner, R. W. (1978). Dialogues concerning fiscal religion. Journal of Monetary Economics, 4: 627-636.
Buiter, W. H. (1988). Can Public Spending Cuts Be Inflationary? NBER Working Paper, 2528, March.
Burney, N. A. (2002). “Wagner’s Hypothesis: Evidence from Kuwait Using Cointegration tests”. Applied Economics (34), 49-57.
Chang, T. (2002), “An Econometric Test of Wagner’s Law for Six Countries, based on Cointegration and Error-Correction Modelling Techniques,” Applied Economics. 34, 1157-1169.
Cass, D. (1965). "Optimum Growth in an Aggregative Model of Capital Accumulation." Review of Economic Studies. 32: 233-40.
Chimobi, O. P. (2009). Government Expenditure and National Income: A Causality Test for Nigeria, European Journal of Economic and Political Studies. 2: 1-11.
Chinedu, B. E., Mike, I. M. and Uchenna, E. (2008). “Inflation Versus Public Expenditure Growth In The Us: An Empirical Investigation”. North American Journal of Finance and Banking Research. 2(2): 26-40.
Clark, C. (1945). Public Finances and Changes in the Value of Money, Economic Journal, December, 371-389.
Cooray, A. (2009). Government Expenditure, Governance and Economic Growth. Comparative Economic Studies, 51(3): 401-418.
David Hauner and Annette Kyobe (2008).” Determinants of Government Efficiency”. IMF Working Paper, WP/08/228.
Devarajan, S. Swaroop V. and Zou H. (1996). The Composition of Public Expenditure and Economic Growth. Journal of Monetary Economics, 37: 313-344.
Dogan, E. and Tang, T. C. (2006). Government Expenditure and National Income: causalityTest For Five South East Asian Countries, International Business & Economics Research Journal, 5(10): 49-58.
Easterly, W. and Rebelo S. (1993). Fiscal Policy and Economic Growth: An Empirical Investigation. Journal of Monetary Economics, 32: 417-458.
Ekpo, A. (1994). Public Expenditure and Economic Growth in Nigeria; 1960-1992. Final Report. AERC, Nairobi.
Enang, B. Udah (2010). Macroeconomic Reforms, Government Size, And Investment Behavior In Nigeria: An Empirical Investigation. Journal of Sustainable Development in Africa 12(1). Clarion University of Pennsylvania, Clarion, Pennsylvania. ISSN: 1520-5509.
Engle, R. F. Granger, CWJ. (1987). Cointegration and error correction: Representation, estimation and testing. Econometrica. 55: 251-276.
Erkin, B. (1988). Government Expenditure and Economic Growth: Reflections on Professor Ram’s Approach, A New Framework and Some Evidence from New Zealand Time Series Data. Keio Economic Studies, 25(1): 59-66.
Ezirim, B. C. and Muoghalu, M. I. (2006). “Explaining the Size of Public Expenditure in Less Developed countries. Theory and Empirical Evidence from Nigeria. ABSU Journal of Management Sciences, 2(2): 134-154.
Ezirim, B. C. and Ofurum, C. O. (2003). “Public Expenditure Growth and Inflation in Developed and Less Developed Countries” Nigerian Business and Social Review, 2(1): 75-94.
Ezirim, B. C., Muoghalu, M. I. and Elike, U. (2008). Inflation versus Public Expenditure Growth in the US: an Empirical Investigation, North American. Journal of Finance and Banking Research, 2(2): 26-40.
Fajingbesi, A. A. and Odusola, A. F. (1999). Public Expenditure and Growth. A Paper Presented at a Training Programme on Fiscal Policy Planning Management in Nigeria, Organized by NCEMA, Ibadan, Oyo State, 137-179.
Fedderke, J., Perkins, P. and Luiz, J. (2006). Infrastructural investment in long run economic growth: South Africa 1875-2001, World Development, 34(6): 1037-1059.
Fluente, A. (1997). Fiscal Policy and Growth in the OECD. Discussion Paper Series No. 1755. Center for Economic Policy Research: London UK.
Folorunso, B. A. and Olayeni, O. R. (2006). Public Expenditure and Economic Growth: Causal Evidence from Nigeria. Ife Social Sciences Review 20(1).
Gabriel C., Hlanganipai N., Mangena M. and Yewukai R. (2014). “The Impact of Government Spending on Economic Growth: Case of South Africa”. Mediterranean Journal of Social Sciences, MCSER Publishing, Rome-Italy. Vol 5 No 1. Pp 109-118.
Granger, CWJ. and Newbold, P. (1974). Spurious Regression in Econometrics. Journal of Economics. 2: 111-20.
Granger, CWJ. (1969). Investigating Causal Relations by Econometric Models and Cross-Spectral Methods, Econometrica, 37, 424-438.
Gregoriou, A. and Ghosh, S. (2007). The Impact of Government Expenditure on Growth: Empirical Evidence from Heterogeneous Panel. [ /0701.pdf]
Gupta, S. P. (1967). Public Expenditure and Economic Growth: A Time Series Analysis. Public Finance, 22: 423-61.
Haque, M. (2004). The Composition of Public Expenditure and Economic Growth in Developing Countries,. Global. Journal of Finance and Economics, 1(1): 97-117.
Haque, M. and Kim, D. (2003). Public investment in transportation and communication and growth: A dynamic panel approach,. Centre for Growth and Business Cycle Research, Economic Studies, University of Manchester, Discussion Paper Series, No. 031.
Huang, C. J. (2006). “Government Expenditures In China And Taiwan: Do They Follow Wagner’s Law?” Journal of Economic Development, 31(2): 139-148.
Johansen, S. and Juselius, K. (1990). Maximum Likelihood Estimation and Inference on Cointegration with Applications to the Demand for Money, Oxford Bulletin of Economics and Statistics, 52, 169-210.
Kabeya, C. M. (2009). Long-run Relationship Between Government Expenditure and Economic Growth: Evidence from SADC Countries. Unpublished Master Thesis, University of Johannesburg, South Africa.
Kneller, R, Bleaney, M. and Gemmell, N. (1999). Fiscal Policy and Growth: Evidence from OECD Countries. Journal of Public Economics, 74: 171-190.
Kolluri, B. R., Panic, J. M., and Wahab, M. (2000). Government Expenditure and Economic Growth; Evidence from G7 Countries. Applied Economics, 32: 1059-1068.
Komain, J. and Brahmasrene, T, (2007). The Relationship between Government Expenditures and Economic Growth in Thailand. Journal of Economics & Economic Education Research. [;co11]
Lamartina, S. and Zaghini, A. (2008). Increasing Public Expenditures: Wagner’s Law in OECD Countries, Center for Financial Studies Working Papers, 13.
Laudau, D. (1983). Government Expenditure and Economic Growth: A Cross Country Study. Southern Economic Journal, 49: 783-792.
Lin, C. A. (1995). “More Evidence on Wagner’s Law for Mexico,” Public Finance, 50, 262-277.
Liu, C., Hsu, C. and Younis, M. Z. (2008). The Association between Government Expenditure and Economic Growth: The Granger Causality Test of the US Data, 1974-2002. Journal of Public Budgeting, Accounting and Financial Management, 20(4): 439-52.
Loizides, J. and Vamvoukas, G. (2005). Government Expenditure and Economic Growth: Evidence from Trivariate Causality Testing. Journal of Applied Economics, 8(1): 125-152.
Lopez, R. and Miller, S. (2007). The Structure of Public Expenditure: A Robust Predictor of Economic Development?. Unpublished manuscript.
MacKinnon, J. G. (2010). "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
Magazzino, C. (2010). “Wagner’s Law” in Italy: Empirical Evidence from 1960 to 2008, Global & Local Economic Review, 2: 91-116.
Magazzino, C., (2011). Wagner's Law and Italian disaggregated public spending. Some empirical evidences. Journal of Policy Modelling, forthcoming.
Maku, O. E. (2009). “Does Government Spending Spur Economic Growth in Nigeria?” MPRA Paper No.17941.
Marlow, M. L. and Manage, N. (1987). Expenditures and receipts: Testing for causality in state and local government finances. Public Choice, 53(3): 243-255.
Meltzer, A. and Richard, S. (1981). A Rational Theory of the Size of Government, Journal of Political Economy 89, 914-927. Michas, N. A., (1975). Wagner’s law of Public Expenditure: What Appropriate Measurement for a valid Test? Public Finance, 30, 77-84.
Milbourne, R., Otto, G. and Voss, G. (2003). Public investment and economic growth. Applied Economics, 35(5): 527.540
Mitchell, J. D. (2005). The Impact of Government Spending on Economic Growth, Backgrounder, 1831. []
Narayan, P. K., Nielsen, I. and Smyth, R. (2008). Panel Data, Cointegration, Causality and Wagner’s law: Empirical from Chinese Provinces. China Economic Review, 19: 297-307.
Nijkamp, P. and Poot, J. (2004). Meta-analysis of the Effect of Fiscal Policy on Long run Growth. European Journal of Political Economy, 20: 91-124.
Olomola, P. A (2004). “Cointegration Analysis-causality Testing and Wagner’s Law: The Case of Nigeria (1970-2001)”, Journal of Social and Economic Development, vol. 6, pp. 76-90.
Olugbenga, A. O. and Owoye, O. (2007). Public Expenditure and Economic Growth: New Evidence from OECD Countries. []
Oxley, L. (1994). Cointegration, Causality and Wagner's Law: A Test for Britain 1870-1913, Scottish Journal of Political Economy, 41: 286-298.
Oyinlola, O. (1993). Nigeria’s National Defence and Economic Development: An Impact Analysis. Scandinavian Journal of Development Alternatives, 12(3): 123-142.
Peacock, A. and Wiseman, J. (1979). Approaches to the analysis of government expenditure growth. Public Finance Review, 7: 3-23.
Peacock, A. T. and Wiseman, J. (1961). The Growth of Public Expenditure in the United Kingdom. Princeton N. J: Princeton University Press for the National Bureau of Economic Research.
Pekarski, S. (2010). Budget deficits and inflation feedback, Structural Change and Economic Dynamics. 22(1): 1-11.
Pesaran, H. M., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of long-run relationships (Working paper no. 9907). Cambridge, United Kingdom: Department of Applied Economics, University of Cambridge.
Peter, S. (2003). Government Expenditures Effect on Economic Growth: The Case of Sweden, 1960-2001. A Bachelor Thesis Submitted to the Department of Business Administration and Social Sciences, Lulea University of Technology, Sweden.
Phillips, P. and Ouliaris, S. (1990). Asymptotic Properties of residual based test for cointegration, Econometrica 58: 73-93.
Ram, R. (1986). Government Size and Economic Growth: A New Framework and Some Evidence from Cross-Section and Time-Series Data. American Economic Review, 76: 191-203.
Ramirez, M. and Nazmi, N. (2003). Public investment and economic growth in Latin America: An empirical test, Review of Development Economics, 7(1): 115-126.
Ranjan, K. D. and Sharma C, (2008). Government Expenditure and Economic Growth: Evidence from India. The ICFAI University Journal of Public Finance, 6(3): 60-69.
Romer, P. M. (1990). “Endogenous Technological Change.” Journal of Political Economy, 98(5): 71-102.
Rostow, W. W. (1971). Politics and the Stages of Growth, Cambridge: Cambridge University Press.
Schalteger, C. A. and Torgler, B. (2006). Growth Effects of Public Expenditure on the state and local level: Evidence from a sample of rich government. Applied Economics, 38, 1181-1192.
Singh, B. and Sahni, B. S. (1984). Causality between Public Expenditure and National Income. The Review of Economics and Statistics, 66, 630-44.
Sevitenyi, I. N. (2012), Government Expenditure and Economic Growth in Nigeria: An Empirical Investigation (1961-2009). The Journal of Economic Analysis, 3(1), pp38-51.
Scrinivasan, P. (2013), Causality between Public Expenditure and Economic Growth: The Indian Case. International Journal of Economics and Management, 7(2), pp 335-347.
Solow, R. M. (1956). “A Contribution to the Theory of Economic Growth.” Quarterly Journal of Economics, 70(1): 65-94.
Soludo, C. C. (2015). “Buhari Versus Jonathan: Beyond the Election.” Daily Sun, 10(3065), Jan. 27, Tue pp.64.
Stephen K. P, Josh D. S and Pedro V. P (2011). “What Does the Penn Word Table 7.0 Tell us about Government Expenditure and Economic Growth?” Iinternational Journal of Economics and Management Sciences, 1, 4, 98-111.
Tulsidharan, S. (2006). Government Expenditure and Economic Growth in India (1960-2000). Finance India, 20, 1, 169-179.
Turnovsky, S. (2004). The Transitional Dynamics of Fiscal Policy: Long-Run Capital Accumulation and Growth. Journal of Money, Credit, and Banking, 36(5).
Uzawa, H. (1965). Optimal Technical change in an Aggregate Model of Economic Growth. International Economic Review, 6, pp. 18-31.
Varvarigos, D. (2010). Inflation, volatile public spending, and endogenously sustained growth, Journal of Economic Dynamics & Control, 34: 1893-1906.
Wagner, A. (1890). Classic in the Theory of Public Finance. London, and Macrnillan. 3rd ed. (Leipzigt partly reprinted in R. A. Musgrave and A. T. Peacock (l958).
Wagner, R. E. and Weber, W. E. (1977). “Wagner’s Law, Fiscal Institutions and the Growth of Government,” National Tax Journal, 30: 59-68.
Wahab, M. (2004). Economic Growth and Government Expenditure. Evidence from a new Test Specification. Applied Economics, 36: 2125-2135.
Wahab, A. L and Rihanat, I. A (2011). “An Analysis of Government Spending on Educational Sector and its Contribution to GDP in Nigeria”. International Journal of Financial Economics and Econometrics, 3(1): 163-170.
Weil, David N. (2009). Economic Growth 2nd edition. Prentice Hall.
Wu S-Y. Tang J-H. and Lin E. (2010) “The Impact of Government Expenditure on Economic Growth: How Sensitive to the Level of Investment?” Journal of Policy Modelling, 32, pp. 804-817.
Science Publishing Group
1 Rockefeller Plaza,
10th and 11th Floors,
New York, NY 10020
Tel: (001)347-983-5186