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Government size and economic growth: evidence from a multivariate cointegration analysis

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  • Khalifa Ghali

Abstract

This study uses multivariate cointegration techniques and attempts to model the dynamic interactions between government size and economic growth in a five variable system consisting of the growth rates of GDP, total government spending, investment, exports, and imports. Using data on ten OECD countries the analysis shows: (i) Government size Granger-causes growth in all the countries with some disparities concerning the proportion by which government size contributes to explaining future changes in the growth rates. An innovation shock at the growth rate of government size generates a permanent effect on the growth rate of GDP that, for some countries, reaches from 26% to 60% of the total change in growth: (ii) Government size also Granger-causes investment and international trade and, for some countries government size Granger-causes growth indirectly either through investment or the trade variables; and (iii) In almost all countries, international trade and investment generate permanent effects on growth. In particular we found that exports and imports do not have the same effects on growth as is the case in cross-country growth models.

Suggested Citation

  • Khalifa Ghali, 1999. "Government size and economic growth: evidence from a multivariate cointegration analysis," Applied Economics, Taylor & Francis Journals, vol. 31(8), pages 975-987.
  • Handle: RePEc:taf:applec:v:31:y:1999:i:8:p:975-987
    DOI: 10.1080/000368499323698
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    References listed on IDEAS

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    Cited by:

    1. Wing Yuk, 2005. "Government Size and Economic Growth: Time-Series Evidence for the United Kingdom, 1830-1993," Econometrics Working Papers 0501, Department of Economics, University of Victoria.
    2. Koffi Yovo, 2017. "Public Expenditure and Economic Growth in Togo," Research Papers RP_331, African Economic Research Consortium.
    3. Facchini, François & Seghezza, Elena, 2018. "Public spending structure, minimal state and economic growth in France (1870–2010)," Economic Modelling, Elsevier, vol. 72(C), pages 151-164.
    4. Aidar Abdychev & La-Bhus Fah Jirasavetakul & Andrew W Jonelis & Lamin Y Leigh & Ashwin Moheeput & Friska Parulian & Ara Stepanyan & Albert Touna Mama, 2015. "Increasing Productivity Growth in Middle Income Countries," IMF Working Papers 15/2, International Monetary Fund.
    5. Pelin Varol Iyidogan & Taner Turan, 2017. "Government Size and Economic Growth in Turkey: A Threshold Regression Analysis," Prague Economic Papers, University of Economics, Prague, vol. 2017(2), pages 142-154.
    6. Burton A. Abrams & Siyan Wang, 2007. "Government Outlays, Economic Growth and Unemployment: A VAR Model," Working Papers 07-13, University of Delaware, Department of Economics.
    7. Ghali, Khalifa H. & Trabelsi, Hédi, 2006. "Capital Ownership And Its Impact On International Trade And Economic Growth: The Tunisian Experience," MPRA Paper 78974, University Library of Munich, Germany.
    8. Yaya Keho, 2016. "Testing Wagner’s Law in the Presence of Structural Changes: New Evidence from Six African Countries (1960-2013)," International Journal of Economics and Financial Issues, Econjournals, vol. 6(1), pages 1-6.
    9. International Monetary Fund, 2014. "Cabo Verde; Staff Report for the 2014 Article IV Consultation," IMF Staff Country Reports 14/296, International Monetary Fund.
    10. Facchini, François & Melki, Mickaël, 2013. "Efficient government size: France in the 20th century," European Journal of Political Economy, Elsevier, vol. 31(C), pages 1-14.
    11. Vasile-Aurel Caus & Daniel Badulescu & Mircea Cristian Gherman, 2017. "Using Wavelets In Economics. An Application On The Analysis Of Wage-Price Relation," Oradea Journal of Business and Economics, University of Oradea, Faculty of Economics, vol. 2(1), pages 32-42, March.
    12. Saten Kumar & Don J. Webber & Scott Fargher, 2012. "Wagner's Law revisited: cointegration and causality tests for New Zealand," Applied Economics, Taylor & Francis Journals, vol. 44(5), pages 607-616, February.
    13. LONZO LUBU, Gastonfils, 2014. "Taille Optimale De L’Etat En Rd Congo
      [Optimal Size Of Government In The Democratic Republic Of Congo]
      ," MPRA Paper 60715, University Library of Munich, Germany.

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