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

Author

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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)

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.

Suggested Citation

  • Ebaid Ali & Bahari Zakaria, 2019. "The Nexus between Government Expenditure and Economic Growth: Evidence of the Wagner’s Law in Kuwait," Review of Middle East Economics and Finance, De Gruyter, vol. 15(1), pages 1-9, April.
    • Handle: RePEc:bpj:rmeecf:v:15:y:2019:i:1:p:9:n:1
    DOI: 10.1515/rmeef-2017-0001
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    1. Jiranyakul, Komain, 2020. "Government Expenditures and Economic Growth: A Cointegration Analysis for Thailand under the Floating Exchange Rate Regime," MPRA Paper 109054, University Library of Munich, Germany.
    2. Jiranyakul, Komain, 2020. "Government Expenditures and Economic Growth: A Cointegration Analysis for Thailand under the Floating Exchange Rate Regime," MPRA Paper 109585, University Library of Munich, Germany.

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    More about this item

    Keywords

    Wagner’s law; TYDL Granger non-causality test; Kuwait; government expenditure; economic growth;
    All these keywords.

    JEL classification:

    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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