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Wagner or Keynes for Ghana? Government Expenditure and Economic Growth Dynamics. A ‘VAR’ Approach

Author

Listed:
  • Kofi Kamasa

    (Centre for Communication and Entrepreneurship Skills, University of Mines and Technology, Tarkwa, Ghana)

  • Grace Ofori-Abebrese

Abstract

This paper analysed empirically the causal relationship between government expenditure growth and GDP growth in Ghana from 1980 – 2010. The study employed vector autoregressive (VAR)/Granger causality analysis developed by Sims (1980) and Granger (1969). The cointegration results provided evidence of a unique cointegrating vector. Granger causality test conducted revealed that causality exist only from GDP growth to government expenditure growth and not the vice versa. This implication supports Wagner’s law of expanding state activities for Ghana. This result means that in estimating government expenditure, GDP growth must be taken into account so as to avoid the problem of misspecification and biasness of estimates generated. The findings also suggest that government must focus on policies that would create the enabling environment for growth to thrive rather than increasing its expenditure with the aim of increasing GDP growth.

Suggested Citation

  • Kofi Kamasa & Grace Ofori-Abebrese, 2015. "Wagner or Keynes for Ghana? Government Expenditure and Economic Growth Dynamics. A ‘VAR’ Approach," Journal of Reviews on Global Economics, Lifescience Global, vol. 4, pages 177-183.
    • Handle: RePEc:lif:jrgelg:v:4:y:2015:p:177-183
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    File URL: http://www.lifescienceglobal.com/independent-journals/journal-of-reviews-on-global-economics/volume-4/85-abstract/jrge/1856-abstract-wagner-or-keynes-for-ghana-government-expenditure-and-economic-growth-dynamics-a-var-approach
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    Citations

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    Cited by:

    1. Kanayo Ogujiuba & Ntombifuthi Mngometulu, 2022. "Does Social Investment Influence Poverty and Economic Growth in South Africa: A Cointegration Analysis?," Economies, MDPI, vol. 10(9), pages 1-23, September.
    2. Paul, Fintan & Furahisha, Godlove, 2017. "Government Expenditure and Economic Growth Nexus: Wagner’s law or Keynesian Hypothesis for Tanzania?," African Journal of Economic Review, African Journal of Economic Review, vol. 5(1), January.
    3. Wahyudi Wahyudi, 2020. "The Relationship between Government Spending and Economic Growth Revisited," International Journal of Economics and Financial Issues, Econjournals, vol. 10(6), pages 84-88.
    4. Omoshoro-Jones, Oyeyinka Sunday, 2016. "A Cointegration and Causality Test on Government Expenditure –Economic Growth Nexus: Empirical Evidence from a South African Province," MPRA Paper 102085, University Library of Munich, Germany, revised 17 Oct 2017.

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