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Government spending and economic growth: a trivariate causality testing

Olumide Olaoye (Ilma University, Karachi, Pakistan)
Olatunji Afolabi (Economics, Obafemi Awolowo University, Ile-Ife, Nigeria)

African Journal of Economic and Management Studies

ISSN: 2040-0705

Article publication date: 6 January 2021

Issue publication date: 25 May 2021

215

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

Acknowledgements

The authors acknowledge the contributions of all anonymous referees.The authors declare that the paper do not receive any funding. However, the authors declare that the paper might be used to apply for young scholars research grant.

Citation

Olaoye, O. and Afolabi, O. (2021), "Government spending and economic growth: a trivariate causality testing", African Journal of Economic and Management Studies, Vol. 12 No. 2, pp. 250-268. https://doi.org/10.1108/AJEMS-07-2020-0334

Publisher

:

Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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