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Government spending and economic growth: a trivariate causality testing

Author

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  • Olumide Olaoye
  • Olatunji Afolabi

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.

Suggested Citation

  • Olumide Olaoye & Olatunji Afolabi, 2021. "Government spending and economic growth: a trivariate causality testing," African Journal of Economic and Management Studies, Emerald Group Publishing Limited, vol. 12(2), pages 250-268, January.
    • Handle: RePEc:eme:ajemsp:ajems-07-2020-0334
    DOI: 10.1108/AJEMS-07-2020-0334
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    Cited by:

    1. Sue Abdinnour & Sesan Oluseyi Adeniji, 2023. "Empirical analysis of the impact of entrepreneurial activity on economic growth of Global Entrepreneurship Monitor (GEM) countries," Journal of Global Entrepreneurship Research, Springer;UNESCO Chair in Entrepreneurship, vol. 13(1), pages 1-11, December.

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