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A Time Series and Panel Analysis of Government Spending and National Income

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  • Alimi, R. Santos

Abstract

This study examined the causal relationship between government spending and national income in panel of three African countries – Nigeria, Ghana and South Africa - during the period 1970 to 2012 using Johansen Fisher Panel Cointegration Test and then on a country-by-country basis using time series Johansen-Juselius cointegration techniques. The panel cointegration results indicate a long run relationship between government spending and national income in the whole panel. The Johansen-Juselius cointegration test suggests an existence of long run relationship between government spending and national income only for Ghana as predicted by Wagner, thus suggesting government spending is not an important factor in economic growth in the long run in Nigeria and South Africa. We found an evidence of bi-directional causality granger causality tests for the whole panel. Furthermore, the result from the causality test shows that there is a bi-directional causality that runs from national income to government expenditure and vice versa for Nigeria and South Africa. However, for Ghana, there was a uni-directional causality that runs from government expenditure to national income and there is no feed-back mechanism. We concluded that Government spending enhances National Income enormously and vice-versa in the short run for Nigeria and South Africa.

Suggested Citation

  • Alimi, R. Santos, 2014. "A Time Series and Panel Analysis of Government Spending and National Income," MPRA Paper 56994, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:56994
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    File URL: https://mpra.ub.uni-muenchen.de/56994/1/MPRA_paper_56994.pdf
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    References listed on IDEAS

    as
    1. 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, June.
    2. Bağdigen, Muhlis & Çetintaş, Hakan, 2003. "Causality between Public Expenditure and Economic Growth: The Turkish Case," MPRA Paper 8576, University Library of Munich, Germany, revised 07 Dec 2003.
    3. John Loizides & George Vamvoukas, 2005. "Government expenditure and economic growth: Evidence from trivariate causality testing," Journal of Applied Economics, Universidad del CEMA, vol. 8, pages 125-152, May.
    4. James Alm & Abel Embaye, 2010. "Explaining The Growth Of Government Spending In South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 78(2), pages 152-169, June.
    5. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Government Expenditures; National Income; Panel Data Analysis;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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