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Economic Growth and Government Spending Nexus: Empirical Evidence from Lesotho

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  • Thabane, Kanono
  • Lebina, Sello

Abstract

This study examines the long-run and causal relationship between government spending and economic growth in Lesotho using the ARDL bounds testing procedure for the period 1980 to 2012. Although several studies, have investigated causality between government expenditure and economic growth, none explored differentiating short run and long run causality. The results of our study indicate a stable long-term relationship between government spending and economic growth in Lesotho. However, the Granger causality test shows the direction running from economic growth to government expenditure, confirming Wagner’s Law in Lesotho. In addition, the outcomes of this study fail to support the Keynesian theory. The results highlight the need for policy makers to shift public outlays towards investment in physical infrastructure which will stimulate growth and consequently improve fiscal sustainability as opposed to recurrent expenditure.

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  • Thabane, Kanono & Lebina, Sello, 2016. "Economic Growth and Government Spending Nexus: Empirical Evidence from Lesotho," African Journal of Economic Review, African Journal of Economic Review, vol. 4(1), January.
    • Handle: RePEc:ags:afjecr:264386
    DOI: 10.22004/ag.econ.264386
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    Cited by:

    1. Ampah Isaac Kwesi & Kotosz Balázs, 2016. "Wagner versus Keynes: the causal nexus between Government Expenditures and Economic Growth: An Empirical study of Burkina Faso," Journal of Heterodox Economics, Sciendo, vol. 3(2), pages 74-101, December.
    2. Rashmi Rastogi & Sangeeta Chakravarty & Basanta K. Pradhan, 2019. "GWagner’s Law for Low Income States in India," IEG Working Papers 383, Institute of Economic Growth.
    3. Fakhre Alam & Harman Preet Singh & Ajay Singh, 2022. "Economic Growth in Saudi Arabia through Sectoral Reallocation of Government Expenditures," SAGE Open, , vol. 12(4), pages 21582440221, October.
    4. Kashif MUNIR & Wajid ALI, 2019. "Wagner versus Keynesian Hypothesis: Role of aggregate and disaggregate expenditure in Pakistan," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(621), W), pages 181-200, Winter.
    5. Yaya Keho, 2017. "Threshold Cointegration, Asymmetric Causality and Wagner¡¯s Law: The African Experience Revisited," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(5), pages 171-180, May.
    6. Ali, Wajid & Munir, Kashif, 2016. "Testing Wagner versus Keynesian Hypothesis for Pakistan: The Role of Aggregate and Disaggregate Expenditure," MPRA Paper 74570, University Library of Munich, Germany.
    7. Sheilla Nyasha & Nicholas M. Odhiambo, 2019. "Government Size and Economic Growth: A Review of International Literature," SAGE Open, , vol. 9(3), pages 21582440198, September.
    8. Omoshoro-Jones, Oyeyinka Sunday, 2016. "A Cointegration and Causality Test on Government Expenditure –Economic Growth Nexus: Empirical Evidence from a South African Province," MPRA Paper 102085, University Library of Munich, Germany, revised 17 Oct 2017.
    9. Deepti Ahuja & Deepak Pandit, 2020. "Public Expenditure and Economic Growth: Evidence from the Developing Countries," FIIB Business Review, , vol. 9(3), pages 228-236, September.
    10. repec:agr:journl:v:4(621):y:2019:i:4(621):p:181-200 is not listed on IDEAS
    11. Paul, Fintan & Furahisha, Godlove, 2017. "Government Expenditure and Economic Growth Nexus: Wagner’s law or Keynesian Hypothesis for Tanzania?," African Journal of Economic Review, African Journal of Economic Review, vol. 5(1), January.

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