Abstract
Abstract The question of how macroeconomic variables dynamically interact is very crucial in any broad-based economic integration aiming at expanding economic growth and living standard in any human society. This study examined the nexus of government spending, price, output, and money in the ECOWAS sub-region using panel ARDL and causality approach. Data covering the period (1981–2019) were collected mainly from the latest version of the World Development Indicators. The result showed a positive relationship between government spending with GDP, import, exchange rate, unemployment rate, and population growth rate but a negative relationship between government spending with inflation, money supply, export, and interest rate. The result further showed short-run unidirectional causality running from government spending to inflation, money supply to inflation as well as money supply to GDP. Short-run bi-directional causality existed between GDP and inflation but none between government spending and GDP nor between government spending and money supply. The result of long-run Granger causality test showed bi-directional causality between government spending with inflation, government spending, and money supply; GDP and inflation; and GDP and money supply. Unidirectional causality ran from GDP to government spending; and money supply to inflation. The overall implication of this study established that an increase in government spending lowered inflation and raised the living standard of people in the ECOWAS sub-region in the long run. The study therefore concluded that any rise in import, unemployment rate, exchange rate, and population growth rate would raise government spending growth rate in the short run; and an increase in government spending would shrink inflation and boost economic growth and living standard in the long run.
Highlights
Every economy, be it developed, emerging or developing as country-specific, regional or global usually has concern over the behaviour of some key macroeconomic variables, namely the general price level, interest rate, exchange rate, unemployment rate, to mention a few
Understanding the dynamic interactions among government spending, price, output, and money, with consideration to import and export of goods and services, exchange rate, unemployment rate, interest rate, and population growth rate at the regional level is crucial for regional economic growth and development
This study is one of the limited studies aiming at testing the cause-effect relationship in this economic sub-region but unique in the use of panel ARDL and causality approach with consideration to gross domestic product, money supply, export trade, import trade, exchange rate, population growth rate, unemployment rate and interest rate
Summary
Be it developed, emerging or developing as country-specific, regional or global usually has concern over the behaviour of some key macroeconomic variables, namely the general price level, interest rate, exchange rate, unemployment rate, to mention a few. Understanding the dynamic interactions among government spending, price, output, and money, with consideration to import and export of goods and services, exchange rate, unemployment rate, interest rate, and population growth rate at the regional level is crucial for regional economic growth and development. This study is one of the limited studies aiming at testing the cause-effect relationship in this economic sub-region but unique in the use of panel ARDL and causality approach with consideration to gross domestic product, money supply, export trade, import trade, exchange rate, population growth rate, unemployment rate and interest rate. Such a study is scarce in the region.
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