Abstract
This study examined the behaviour of government spending and economic growth in six ECOWAS countries using ARDL and UVAR-based modified granger non-causality approach. Secondary data covering1981-2013 were sourced on key variables from (WDIs) 2014 edition. The result of Johansen and ARDL bound test suggests a long run equilibrium relationship between government spending and economic growth in all the six countries. The result of the modified ARDL indicates that variables adjust to a long run equilibrium path after a short run deviation. The ECM coefficient is negatively signed and significant at 5 and even at 1 percent in line with a priori expectation. This provides strong support for the long run equilibrium relationship. However, the speed of adjustment to long run equilibrium path varies across the six countries. The causality test result suggests that bidirectional causality exists for Gambia, Cote d’Ivoire, Senegal and Burkina Faso while unidirectional causality running from economic growth to government spending was found for Nigeria and Ghana. There is no support for the feedback hypothesis. Policy makers in this region are enjoined to caution on the call for fiscal consolidation but rather consider the fiscal space alternative to advance the developing economies in this sub-region. The study therefore concluded that there is a cause-effect relationship between government spending among other variables and economic growth in the developing ECOWAS countries.
Highlights
The enquiry on the relationship between government spending and economic growth has ever remained a subject of interest among scholars and economic writers since the inception of Keynes and the Keynesian economics
The result from the table shows that five of the variables used in this study are non-stationary since both the Augmented Dickey Fuller (ADF) and PP tests could not reject the hypothesis of a unit root at 5 percent level of significance
There is only one cointegrating vector in the case of Nigeria. This result shows that there exists a long run equilibrium relationship between government spending and economic growth in all the countries involved in the study
Summary
The enquiry on the relationship between government spending and economic growth has ever remained a subject of interest among scholars and economic writers since the inception of Keynes and the Keynesian economics. There has been a growing concern that large government has adverse effect on the long run growth of the economy This pessimistic view remains to characterize the long run equilibrium relation and causality between government spending and economic growth. Empirical evidence in favour of large government is provided in some economies and regions where supports are found for long run equilibrium relation and causality between government spending and economic growth. It is quite convincing that many controversial results characterized the existing studies in relation to modeling of long run equilibrium relation and direction of causality between government spending and economic growth The reasons for these might be in the area of measurement of variables, especially error associated with measurement of government spending, inappropriate econometric application and exclusion of some vital exogenous variables that may serve as additional sources of long run equilibrium relation and causality.
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