Abstract
In the scientific literature, there are two opposing views on the relationship between public expenditure and economic growth. The Keynesian view states that public expenditure is an exogenous factor that influences economic growth and can be used as a policy instrument. This point of view is in contrast to the Wagner view that the public expenditure is seen as an endogenous factor or an outcome, not a cause, of economic growth. The primary objective of this study is to test the views of Keynes’s versus Wagner’s in the case of Kosovo by using Public Expenditure (G), Gross Domestic Product and three other components of GDP: Foreign Direct Investment (FDI), Export (EXP) and Total Budget Revenue (TRtax); the variables used in this analysis are quarterly time series data spanning from 2004–2016. To accomplish the set objectives, the Johansen co-integrated technique is used to investigate the long-run relationship between public expenditure and economic growth, while the Granger causality test is used to know the direction of flow between variables. This study discovers that there is a unidirectional causality between government expenditures and economic growth in Kosovo. It is also found that there is a bidirectional causality between total budget revenue and public expenditure. On the other hand, results also provide evidence that there is a bidirectional causality between export and economic growth. Moreover, the results for Kosovo indicate that data for the period considered support the Keynesian view.
Highlights
The relationships between public expenditure and economic growth have attracted enormous attention within literature devoted to economics
Did the economic growth cause public expenditure (Wagner’s view), or was it the opposite – did public expenditure cause economic growth (Keynesian’s view)? This study examined whether the economic effects expressed either in Wagner’s or Keynes’s views have any effect in Kosovo with the application of the Johansen co-integrated test and the Granger causality test
The aim of this study was to analyze the relationship between economic growth and public expenditure for Kosovo
Summary
The relationships between public expenditure and economic growth have attracted enormous attention within literature devoted to economics. Empirical studies have taken place for measuring the impact of mpirical studiepasrughbualveicde ettaxhkpaetennridpsiiltnaucgreegfooonvreoerncnomtnheoenmtimiecxpgpacreotnwdoiftthupruaebnlodincaecpxhhpiyeesvniecddaitludirniefffrearsetnrut crteusruel,tsh.eTalhtehs,edestfuednisees, th and achieevdeducadtiifofneraenndt Rre&suDlt,s.maTihnelysebassteuddioesn parrogduuedctivtheastperinsdiningg, will impact and influence iture on phystihcael diinrfercatsiotrnucotufree,cohneoamlthic, dgerofewntshe., WedhuecraetaisoninacnredasRin&gDp,ublic expenditure, which is oductive spendbiansge,dwoinll nimonp-apcrtodauncdtiivneflsupeenncdeisngth,esudcihreacstioconnosfumecpotnioonmeixcpenditure, does not have any creasing publiiScmleepxmapcreotndod,niWtugrrileol,wiawtmhh.i&cThhEoiasssebteasrstlueydd(i1oe9sn9an5roe)n,bB-apasrreorddouoRcnt.ie(v1ne9ds9op0ge)en,ndBoianurgsr,ogr&owMtharmtinod(e1l9s9s0u)p, pMoertneddobzya xpenditure do(e1s9n9o7t),hDavaer a&nyAimmiprKachtaolknhgarloi,wAtshc.hTahuoesre(1s9tu8d9i)e.s are based wth models suppoInrtetdhebyliteSrlaetmurreodt,haWt irlelgiaamrd,s&theEsaestteorplyic, s(,1a99c5o)n, tBraasrtroto the Keynesian view – the Martin, (1990),WMaegnndeorzhay, p(1o9th9e7s)i,sD–asrt&ateAsmthiartKphuablklihcaelxi,pAenscdhitauureeri,s(1a9n8o9u)t.come of economic growth. It means that Wagner argues for public expenditure as an endogenous factor that hereupon ature, a contracsatntonotht ebKe eryenlieesdianonvieaws ,athpeoWlicaygnienrsthryupmoethnet.siAs cstcaotredsitnhgatto Hossain (2013), Wagner s an outcomepoofstueclaotneosmthiact gercoownothm. A. (2012), Menyah & Wolde-Rufael (2012), Bayrakdara, Demez & Yapar (2015), Magazzino (2012), Al-Faris (2002)
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