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Government Expenditures and Economic Growth dynamics in Ghana

Frank Adu (), Ohene-Manu Joseph and Ishmael Ackah
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Ohene-Manu Joseph: University of Portsmouth

International Journal of Economics and Empirical Research (IJEER), 2014, vol. 2, issue 5, 180-190

Abstract: The duties of government undeniably transcend the making laws. Government spends to provide social amenities, as well as ensuring growth. But while these expenditures have their own benefits, they equally could have shocking ramifications on the economy. The study set out to investigate the impact of government expenditure on economic growth, test the existence of the Wagnerian hypothesis in Ghana as well as to provide evidence on whether government expenditure plays any catalytic role for the growth of private investment by employing the ARDL model and Granger causality test with data spanning from 1970 to 2010. The study concluded that, in the long run government expenditure has a significant positive impact on economic growth but has a negative impact on economic growth in the short run. The study also indicates that government expenditure does not play any supporting role for private investment in Ghana and lastly it was that the Wagnerian hypothesis is valid for Ghana. The study therefore advocates for fiscal discipline and control to keep the government recurrent spending at the optimal level so as to trigger positive ripple effect to other sectors of the economy and avoid the crowding out effect in the Ghanaian economy.

Keywords: Economic growth; Government expenditures; Wagner’s hypothesis; Cointegration (search for similar items in EconPapers)
JEL-codes: F43 C22 (search for similar items in EconPapers)
Date: 2014
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Handle: RePEc:ijr:journl:v:2:y:2014:i:5:p:180-190