Causal Nexus between Government Expenditure and Economic Growth in the Presence of Structural Breaks in Nigeira: A Bootstrap ARDL Approach
Keywords:Government expenditure, Gross domestic product, Keynesian hypothesis, Structural breaks, Wagner’s law
Researchers all over the world have not agreed on the causal relationship between economic growth and government expenditure. Hence, this work re-examined the nexus between government expenditure and economic growth in the presence of structural breaks for Nigerian economy. It used time series annual data from 1981 to 2020 and the Bootstrap Autoregressive distributed lag model. The results show that economic growth has strong and positive impact on government expenditure in both short run and long run in Nigeria. The results also indicate uni-direction causality which runs from economic growth to government expenditure. This finding supports the Wagner’s law which posits that economic growth leads while expenditure follows. These results suggest that economic growth is the main driver of government expenditure both in the short run and long run in Nigeria. Consequently, government activities should be directed toward stimulating economic growth rather than increasing unproductive government expenditure.
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