Government spending and economic growth: a trivariate causality testing

Olumide Olaoye and Olatunji Afolabi

African Journal of Economic and Management Studies, 2021, vol. 12, issue 2, 250-268

Abstract: Purpose - This paper investigates whether institutional environment influences the relationship government spending and economic growth in ECOWAS over the period 2008–2017. Design/methodology/approach - The study adopts the recently developed panel vector autoregressive (PVAR) by Abrigo and Love (2015) and a two-step system generalised method of moment (GMM). Findings - The results from the study show no evidence of either unidirectional or bidirectional causal relationship between government spending and economic growth in ECOWAS. Our findings reveal that government spending when associated with high level of corruption, oversized government and a waste of public resources will not cause economic growth. Originality/value - Unlike previous studies, we resolve the inherent problems of endogeneity and persistence in economic data. Likewise, we depart from existing studies that examined the causal relationship in a bivariate framework and adopt a trivariate causality testing.

Keywords: Government spending; Economic growth; Institutions; Bivariate; Trivariate; PVAR (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:ajemsp:ajems-07-2020-0334

DOI: 10.1108/AJEMS-07-2020-0334

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