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Article
Publication date: 8 October 2020

Olumide Olusegun Olaoye, Ukafor Ukafor Okorie, Oluwatosin Odunayo Eluwole and Mahmood Butt Fawwad

This study examines the asymmetric effect of government spending on economic growth in Nigeria over the period 1980–2017. Specifically, this study investigates whether the…

Abstract

Purpose

This study examines the asymmetric effect of government spending on economic growth in Nigeria over the period 1980–2017. Specifically, this study investigates whether the response of economic growth to government spending shocks differs according to the nature of shocks on them. In addition, the authors examine whether the stabilizing effects of fiscal policies are dependent on the state of the business cycle.

Design/methodology/approach

The study adopts the linear fiscal reaction function in addition to the nonlinear regression model of Hatemi-J (2011, 2012), Granger and Yoon (2002), which allows us to separate negative shocks from positive shocks to government spending. Similarly, the authors adopt the generalized method of moments (GMM) techniques of Hansen (1982) to account for simultaneity and endogeneity problems inherent in dynamic model.

Findings

The authors’ findings reveal that there is evidence of asymmetry in the government spending–economic growth nexus in Nigeria over the period of study. Specifically, the authors find that the response of economic growth to government spending shocks differs according to the nature of shocks on them. More specifically, the study established that the stabilizing effects of fiscal policies are dependent on the state of the business cycle.

Originality/value

Unlike the traditional method of modeling asymmetry, which adopts the simple inclusion of a squared government spending term or by the inclusion of a cubic government spending term, the model adopted in this study allows us to model shocks and show how the responses of economic growth to government expenditure differ according to the nature of shocks on them.

Details

Journal of Economic and Administrative Sciences, vol. 37 no. 4
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 4 June 2020

Olumide Olusegun Olaoye, Monica Orisadare, Ukafor Ukafor Okorie and Ezekiel Abanikanda

The purpose of this study is to investigate the effect of government expenditure on economic growth in 15 Economic Community of West African States (ECOWAS) countries over…

Abstract

Purpose

The purpose of this study is to investigate the effect of government expenditure on economic growth in 15 Economic Community of West African States (ECOWAS) countries over the period of 2005–2017. More precisely, this paper investigates whether institutional environment influences the effect of government spending on economic growth.

Design/methodology/approach

This study adopts the generalized method of moments-system method of estimation to address the problem of dynamic endogeneity inherent in the relationship. Similarly, unlike previous studies which assume that the disturbances of a panel model are cross-sectionally independent, we account for cross-section dependency and cross-country heterogeneity inherent in empirical modeling using Driscoll and Kraay's nonparametric covariance matrix estimator, adjusted for use with both balanced and unbalanced panels along with Monte Carlo simulations.

Findings

The authors find that though, government spending has a positive impact on economic growth but the level of institutional quality adversely affect that positive impact. This suggests that the institutional environment in ECOWAS countries is a drag and not a push factor for government fiscal operations and/policies. Thus, the results provide empirical evidence that there is a conditional relationship between government spending and economic growth in African countries. That is, the effect of government spending on economic growth is dependent on the quality of institutions. Lastly, these findings suggest that in order for government spending to contribute to economic growth, African countries must develop a strong institutional environment.

Originality/value

Unlike previous time series studies for African countries which concentrated on the two variable case, we include institutional quality as a third variable to underline the potential importance of institutional quality for economic growth in ECOWAS countries.

Details

Journal of Economic and Administrative Sciences, vol. 36 no. 4
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 7 November 2019

Olumide Olusegun Olaoye, Monica Orisadare and Ukafor Ukafor Okorie

The purpose of this paper is to examine the direction of causality between government expenditure and economic growth in the Economic Community of West African States…

Abstract

Purpose

The purpose of this paper is to examine the direction of causality between government expenditure and economic growth in the Economic Community of West African States (ECOWAS) countries.

Design/methodology/approach

The study adopts the recently developed panel vector autoregressive (PVAR) by Love and Abrrigo (2015) and two-step system generalized method of moments (GMM) in order to resolve the inherent problems of endogeneity and persistence in economic data.

Findings

The results from the study show no evidence of either unidirectional or bidirectional causal relationship between government expenditure and economic growth in ECOWAS member countries.

Originality/value

Unlike previous studies that adopted cointegration technique, we adopt a system GMM through the application of a dynamic PVAR framework within the framework of panel data analysis in order to address the possibility of feedback effect in the causal relationship between government expenditure and economic growth. In addition the PVAR also allows us to model shocks across countries.

Details

Journal of Economic and Administrative Sciences, vol. 36 no. 3
Type: Research Article
ISSN: 1026-4116

Keywords

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