Wagner or Keynes for Ghana? Government Expenditure and Economic Growth Dynamics. A ‘VAR’ Approach
DOI:
https://doi.org/10.6000/1929-7092.2015.04.18Keywords:
Granger causality, Cointegration, Unit root, Government Expenditure, GDP growthAbstract
This paper analysed empirically the causal relationship between government expenditure growth and GDP growth in Ghana from 1980 - 2010. The study employed vector autoregressive (VAR)/Granger causality analysis developed by Sims (1980) and Granger (1969). The cointegration results provided evidence of a unique cointegrating vector. Granger causality test conducted revealed that causality exist only from GDP growth to government expenditure growth and not the vice versa. This implication supports Wagner's law of expanding state activities for Ghana. This result means that in estimating government expenditure, GDP growth must be taken into account so as to avoid the problem of misspecification and biasness of estimates generated. The findings also suggest that government must focus on policies that would create the enabling environment for growth to thrive rather than increasing its expenditure with the aim of increasing GDP growth.
References
Ansari, Mohammed I., Gordon, D. V. and Akuamoah, C. 1997. “Keynes Versus Wagner: Public Expenditure and National Income for Three African Countries.” Applied Economics 29: 543-550
http://dx.doi.org/10.1080/000368497327038
Barth, J.R., Keleher, R.E. and Russek, F.S. 1990. “The Scale of Government and Economic Activity.” Southern Economic Journal, 142-183.
Bohl, Martin T. 1996. “Some International Evidence of Wagner’s Law.” Public Finance 51: 185-200
Chih-hung Liu, L. Hsu, C.E. and Younis, M.F. 2008. “The Association Between Government Expenditure and Economic Growth, Granger Causality Test of US Data, 1947 – 2002.” Journal of Public Budgeting, Accounting & Financial Management. 20 (4): 439-452
Dickey, David A. and Fuller, Wayne A. 1979. “Distribution of the Estimators For Autorregressive Time Series With A Unit Root.” Journal of the American Statistical Association. 74: 427-31.
Georgakopoulus, T.A. and Loizides J. 1994. “The Growth of the Public Sector: Tests of Alternative Hypothesis with Data from Greece.” The Cyprus Journal of Economics 7: 12 – 29
Ghali, Khalifa H. 1998. “Government Size and Economic Growth: Evidence from Multivariate Cointegration Analysis.” Applied Economics 31: 975 – 987.
http://dx.doi.org/10.1080/000368499323698
Ghartey, Edward E. 2006. “Economic Growth, Expanding role of Government and Fiscal policy in Ghana: 1965-2004.” Institute of Economic Affairs
Granger, C.W. 1980. “Testing for Causality.” Journal of Economic Dynamic and Control 4: 229-252.
Holmes, James M. and Hutton, Patricia A. 1990. “On the Causal Relationship Between Government Expenditures and National Income.” Review of Economics and Statistics 72: 87-95.
http://dx.doi.org/10.2307/2109743
Islam, Anisul M. 2001. “Wagner’s law revisited: cointegration and exogeneity tests for the USA.” Applied Economics Letters, 8: 509-515.
http://dx.doi.org/10.1080/13504850010018743
Jackson, Peter M., Meryem, Duygun Fethi and Sami, Fethi. 1999. “Cointegration, Causality, and Wagner’s Law: A Test for Northern Cyprus, 1977-1996.” http://www.le.ac.uk/ economics/research/RePEc/lec/lpserc/pserc99-2.pdf
Landau, Daniel. 1983. “Government expenditure and Economic Growth: A Cross-Country Study.” Southern Economic Journal 35: 783-792.
http://dx.doi.org/10.2307/1058716
Landau, Daniel. 1986. “Government Expenditure and Economic Growth in the Less Developed Countries: An Empirical Study for 1960-1980.” Economic Development and Cultural Change 35: 35-75.
http://dx.doi.org/10.1086/451572
Loizides, John and Vamvoukas, George. 2005. “Government Expenditure and Economic Growth: Evidence from Trivarate Causality testing.” Journal of Applied Economics 3(1): 125-152.
Ram, Rati. 1986a. “Government Size and Economic Growth: A New Framework and Some Evidence from Cross Section and Times Series Data.” American Economic Review 76: 191-203.
Ram, Rati. 1986b. “Causality Between Income and Government Expenditure: A Broad International Prospective.” Public Finance, 41:393-414.
Singh, Balvir and Sahni, Balbir S. 1984. “Causality between Public Expenditure and National Income.” Review of Economics and Statistics, 56:630-644.
http://dx.doi.org/10.2307/1935987
Tang, Tuck Cheong. 2001. “Testing the relationship between Government Expenditure and National Income in Maylasia.” Analysis, 8 (1 & 2). pp. 37-51. http://ijms.uum.edu.my
Wagner, Adolph, (1863), Grundlegung der Politischen Ökonomie.
http://dx.doi.org/10.1080/000368497327038
Barth, J.R., Keleher, R.E. and Russek, F.S. 1990. “The Scale of Government and Economic Activity.” Southern Economic Journal, 142-183.
Bohl, Martin T. 1996. “Some International Evidence of Wagner’s Law.” Public Finance 51: 185-200
Chih-hung Liu, L. Hsu, C.E. and Younis, M.F. 2008. “The Association Between Government Expenditure and Economic Growth, Granger Causality Test of US Data, 1947 – 2002.” Journal of Public Budgeting, Accounting & Financial Management. 20 (4): 439-452
Dickey, David A. and Fuller, Wayne A. 1979. “Distribution of the Estimators For Autorregressive Time Series With A Unit Root.” Journal of the American Statistical Association. 74: 427-31.
Georgakopoulus, T.A. and Loizides J. 1994. “The Growth of the Public Sector: Tests of Alternative Hypothesis with Data from Greece.” The Cyprus Journal of Economics 7: 12 – 29
Ghali, Khalifa H. 1998. “Government Size and Economic Growth: Evidence from Multivariate Cointegration Analysis.” Applied Economics 31: 975 – 987.
http://dx.doi.org/10.1080/000368499323698
Ghartey, Edward E. 2006. “Economic Growth, Expanding role of Government and Fiscal policy in Ghana: 1965-2004.” Institute of Economic Affairs
Granger, C.W. 1980. “Testing for Causality.” Journal of Economic Dynamic and Control 4: 229-252.
Holmes, James M. and Hutton, Patricia A. 1990. “On the Causal Relationship Between Government Expenditures and National Income.” Review of Economics and Statistics 72: 87-95.
http://dx.doi.org/10.2307/2109743
Islam, Anisul M. 2001. “Wagner’s law revisited: cointegration and exogeneity tests for the USA.” Applied Economics Letters, 8: 509-515.
http://dx.doi.org/10.1080/13504850010018743
Jackson, Peter M., Meryem, Duygun Fethi and Sami, Fethi. 1999. “Cointegration, Causality, and Wagner’s Law: A Test for Northern Cyprus, 1977-1996.” http://www.le.ac.uk/ economics/research/RePEc/lec/lpserc/pserc99-2.pdf
Landau, Daniel. 1983. “Government expenditure and Economic Growth: A Cross-Country Study.” Southern Economic Journal 35: 783-792.
http://dx.doi.org/10.2307/1058716
Landau, Daniel. 1986. “Government Expenditure and Economic Growth in the Less Developed Countries: An Empirical Study for 1960-1980.” Economic Development and Cultural Change 35: 35-75.
http://dx.doi.org/10.1086/451572
Loizides, John and Vamvoukas, George. 2005. “Government Expenditure and Economic Growth: Evidence from Trivarate Causality testing.” Journal of Applied Economics 3(1): 125-152.
Ram, Rati. 1986a. “Government Size and Economic Growth: A New Framework and Some Evidence from Cross Section and Times Series Data.” American Economic Review 76: 191-203.
Ram, Rati. 1986b. “Causality Between Income and Government Expenditure: A Broad International Prospective.” Public Finance, 41:393-414.
Singh, Balvir and Sahni, Balbir S. 1984. “Causality between Public Expenditure and National Income.” Review of Economics and Statistics, 56:630-644.
http://dx.doi.org/10.2307/1935987
Tang, Tuck Cheong. 2001. “Testing the relationship between Government Expenditure and National Income in Maylasia.” Analysis, 8 (1 & 2). pp. 37-51. http://ijms.uum.edu.my
Wagner, Adolph, (1863), Grundlegung der Politischen Ökonomie.
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Published
2015-11-27
How to Cite
Kofi Kamasa, K. K., & Ofori-Abebrese, G. (2015). Wagner or Keynes for Ghana? Government Expenditure and Economic Growth Dynamics. A ‘VAR’ Approach. Journal of Reviews on Global Economics, 4, 177–183. https://doi.org/10.6000/1929-7092.2015.04.18
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