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The effect of federal government size on economic growth in Nigeria, 1961-2011

Author

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  • Awomuse, Bernard O.
  • Olorunleke, Kola
  • Alimi, R. Santos

Abstract

This study investigates whether there is statistical evidence for a causal relationship between federal government expenditures and growth in real per-capita GDP in the Nigeria, using long and up to date available time series data (1961-2011). After studying the time-series properties of these variables for stationarity and cointegration, we adopted Toda and Yamamoto’s (1995) Granger non-causality tests and investigate Granger causality in detail in the context of a Vector Autoregressive Model. The Empirical results from cointegration test indicate that there exists no long-run relationship between government expenditure and economic growth in Nigeria. The Toda and Yamamoto’s causality test results show that Wagner’s Law does not hold over the period being tested. However, using VAR Granger causality test we found a weak empirical support in the proposition by Keynes that public expenditure is an exogenous factor and a policy instrument for increasing national income in the short run.

Suggested Citation

  • Awomuse, Bernard O. & Olorunleke, Kola & Alimi, R. Santos, 2013. "The effect of federal government size on economic growth in Nigeria, 1961-2011," MPRA Paper 53467, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:53467
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    File URL: https://mpra.ub.uni-muenchen.de/53467/1/MPRA_paper_53467.pdf
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    References listed on IDEAS

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    1. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    2. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
    3. Lindauer, David L & Velenchik, Ann D, 1992. "Government Spending in Developing Countries: Trends, Causes, and Consequences," World Bank Research Observer, World Bank Group, vol. 7(1), pages 59-78, January.
    4. Manh Vu Le & Terukazu Suruga, 2005. "Foreign direct investment, public expenditure and economic growth: the empirical evidence for the period 1970-2001," Applied Economics Letters, Taylor & Francis Journals, vol. 12(1), pages 45-49.
    5. Yamada, Hiroshi, 1998. "A note on the causality between export and productivity:: an empirical re-examination," Economics Letters, Elsevier, vol. 61(1), pages 111-114, October.
    6. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    7. Landau, Daniel, 1986. "Government and Economic Growth in the Less Developed Countries: An Empirical Study for 1960-1980," Economic Development and Cultural Change, University of Chicago Press, vol. 35(1), pages 35-75, October.
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    Citations

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    Cited by:

    1. 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.
    2. Bashir Olayinka Kolawole, 2016. "Government Spending and Inclusive-Growth Relationship in Nigeria: An Empirical Investigation," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 19(2), pages 33-56, November.
    3. Alimi, R. Santos, 2014. "A Time Series and Panel Analysis of Government Spending and National Income," MPRA Paper 56994, University Library of Munich, Germany.

    More about this item

    Keywords

    Federal government size; Wagner’s Law; Cointegration; Granger causality; Vector Autoregression;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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