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

  • Sunday Osaretin Iyare
  • Troy Lorde

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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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. Phillips, P.C.B., 1986. "Testing for a Unit Root in Time Series Regression," Cahiers de recherche 8633, Universite de Montreal, Departement de sciences economiques.
  3. Devarajan, Shantayanan & Swaroop, Vinaya & Heng-fu, Zou, 1996. "The composition of public expenditure and economic growth," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 313-344, April.
  4. 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.
  5. 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.
  6. James G. MacKinnon, 2010. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
  7. 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, August.
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