Abstract
Liberia is currently experiencing one of its worse economic decline in over a decade. Various explanations are attributable to this decline. The 2014 Ebola Virus disease, the withdrawal of the multinational peace keeping force and the reduction in its primary exports, rubber, timber, etc can all be cited as causes of such decline. To further inflame the anguish of the economy, the 2019 corona virus disease dampened the hopes for further economic repairs. The decline in the global economies weakens the demand for Liberia’s primary exports, iron ore and rubber. Given all these shocks, this research investigated the effect of government expenditure on economic growth in Liberia over the last 50 years. The research used vector error correction model to test for long run relationship between the two variables and found that there is a slightly strong long run relationship between government expenditure and growth, but did not find any short run relationship between government spending and growth. This implies that any non- performance of the budget which is the vehicle used to ferry government activities will have an adverse short run implication on the macroeconomy of Liberia. The research used data on government expenditure obtained from the Ministry of Finance and Development planning in Liberia, the World Bank database for economic growth.
Highlights
The speedily and unambiguous support for fiscal involvement in most countries has been somewhat of a surprise [12]
The relationship between government expenditure and economic growth has been approved by Keynesians from a theoretical perspective [9]; while the Neo classicals and calssicals economists have opined that there is a negative impact of government expenditure on growth [10, 8]
The system equation above showed that the speed of adjustment, which is represented by sigma in the model is negative which satisfy the first condition which means economically that there is a long run relationship between government expenditure and economic growth in the Liberian economy
Summary
The speedily and unambiguous support for fiscal involvement in most countries has been somewhat of a surprise [12]. This was because of the disbelief that the centuries old classical school of thought was perforated during those gloomy days. Keynes’ General Theory that recommended the intervention of the government (fiscal intervention) to address certain economic anguish was the direction that many countries adopted. Many economists had withdrawn support in fiscal policy effectiveness in the 70s as a result of the empirically doubtful Ricardian Equivalence Hypothesis (REH) [2]. Since after the global financial crisis of the mid 2000s, many economists are reconsidering the effect of fiscal policy in stabilizing their devastated economies
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
