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Co-integration, causality and Wagner's law: tests for selected Caribbean countries

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  • Sunday Osaretin Iyare
  • Troy Lorde

Abstract

In this paper, six versions of Wagner's Law were empirically tested employing aggregate annual time-series data on nine Caribbean countries. The results indicate that a long-run equilibrium relationship between income and government expenditure does not exist for the countries studied, with the exceptions of Grenada, Guyana and Jamaica for a particular formulation of Wagner's Law. However, the direction of causality runs from income to government expenditure only for Guyana, while for the other two, the causality runs in the other direction. Results for short-run causality are mixed, but the predominant causal relationship appears to run from income to government expenditure. In light of the empirical results in this paper, one may tentatively conclude that Wagner's Law finds broad support in these islands. These results run counter to what has been previously reported for a subset of the islands studied in this paper.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 11 (2004)
Issue (Month): 13 ()
Pages: 815-825

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Handle: RePEc:taf:apeclt:v:11:y:2004:i:13:p:815-825

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  1. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  2. Peter C.B. Phillips & Pierre Perron, 1986. "Testing for a Unit Root in Time Series Regression," Cowles Foundation Discussion Papers 795R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1987.
  3. Alan T. Peacock & Jack Wiseman, 1961. "The Growth of Public Expenditure in the United Kingdom," NBER Books, National Bureau of Economic Research, Inc, number peac61-1.
  4. Shantayanan Devarajan & Vinaya Swaroop & Heng-fu Zou, 1996. "The composition of public expenditure and economic growth," CEMA Working Papers 77, China Economics and Management Academy, Central University of Finance and Economics.
  5. James G. MacKinnon, 2010. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
  6. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  7. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
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Cited by:
  1. Wu, Shih-Ying & Tang, Jenn-Hong & Lin, Eric S., 2010. "The impact of government expenditure on economic growth: How sensitive to the level of development?," Journal of Policy Modeling, Elsevier, vol. 32(6), pages 804-817, November.
  2. Magazzino, Cosimo, 2012. "Wagner versus Keynes: Public spending and national income in Italy," Journal of Policy Modeling, Elsevier, vol. 34(6), pages 890-905.
  3. Magazzino, Cosimo, 2010. "Wagner's law and augmented Wagner's law in EU-27. A time-series analysis on stationarity, cointegration and causality," MPRA Paper 26668, University Library of Munich, Germany.
  4. Cosimo Magazzino, 2012. "The Nexus between Disaggregated Public Spending and GDP in the Euro Area," Economics Bulletin, AccessEcon, vol. 32(3), pages 2560-2579.
  5. Samad Bashirli & Ilkin Sabiroglu, 2013. "Testing Wagner’s Law in an Oil-Exporting Economy: the Case of Azerbaijan," Transition Studies Review, Springer, vol. 20(3), pages 295-307, November.
  6. Kojo Menyah & Yemane Wolde-Rufael, 2012. "Wagner'S Law Revisited: A Note From South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 80(2), pages 200-208, 06.
  7. Wu, Alfred M. & Lin, Mi, 2010. "Determinants of government size: Evidence from China," MPRA Paper 27089, University Library of Munich, Germany.

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