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The Nexus between Government Expenditure and Economic Growth: Evidence of the Wagner’s Law in Kuwait

Ebaid Ali () and Bahari Zakaria
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Ebaid Ali: Economic Programme, School of Social Sciences, Universiti Sains Malaysia, 11800 Gelugor, Penang, Malaysia
Bahari Zakaria: Centre for Islamic Development Management Studies (ISDEV), Universiti Sains Malaysia, 11800 Gelugor, Penang, Malaysia

Review of Middle East Economics and Finance, 2019, vol. 15, issue 1, 9

Abstract: This study is the first attempt to examine the validity of the Wagner’s law hypothesis by employing time-series data over the period from 1970 to 2015 in Kuwait. In this paper, the causal relationship between government expenditure and economic growth is tested by conducting the Granger non-causality test developed by (Toda, H. Y., and T. Yamamoto. 1995. “Statistical Inference in Vector Autoregressions with Possibly Integrated Processes.” Journal of Econometrics 66 (1): 225–250.) and (Dolado, J. J., and H. Lütkepohl. 1996. “Making Wald Tests Work for Cointegrated VAR Systems.” Econometric Reviews 15 (4): 369–386.). The empirical results support the unidirectional causality running from government spending to economic growth. This occurs only when real government expenditure per capita is a proxy for state activity and real gross domestic product (GDP) per capita is a measure of economic growth. This implies that Wagner’s law does not apply for Kuwait’s economy, and the Keynesian proposition of government spending as a policy instrument that encourages and leads economic growth is supported by the data used.

Keywords: Wagner’s law; TYDL Granger non-causality test; Kuwait; government expenditure; economic growth (search for similar items in EconPapers)
JEL-codes: H5 H50 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1515/rmeef-2017-0001

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