The Nexus between Public Expenditure and Economic Growth
Research on the nexus between government expenditure and economic growth produces mixed results from different countries. Objective. The objective of this paper is to test if a causal relationship exists between government expenditure and economic growth in South Africa. Prior work: the paper relied on testing the applicability of Wagner’s and Keynesian theories on public expenditure and economic growth with data from South Africa. Approach. Data on South Africa’s government expenditure and economic growth for 1961 – 2018 were used and the Granger causality Wald test was used to analyse the causality. Result. Neither Wager’s nor Keynesian hypothesis was proven within the limit of the fifty-eight years’ data used. This is because the results show no significant causal relationship from either side of economic growth and public expenditure. Implication. Policy makers should pay attention on how to channel government expenditure and the gains from economic growth to improve citizens’ ability to increase their productive capital. Further researchers should expand the time series coverage to go beyond 1961 to check for new results; a regional panel data for Southern Africa is also recommended for further research. Value. This paper produces a new test of Wagner’s and Keynesian hypothesis by merging data from the pre-democratic with the democratic period of South Africa and applied a combination of ADF, co-integration, VAR and Granger Causality analysis.
Abomaye-Nimenibo, P. D. & Samuel, W. A. (2020). The Empirical Evaluation of How Public Expenditure Influences Economic Growth in Nigeria. Global Journal of Management and Business Research. Retrieved from https://journalofbusiness. org/index. php/GJMBR/article/view/3038, date: 04. 13. 2020.
Al-Faris, A. F. (2002). Public expenditure and economic growth in the Gulf Cooperation Council countries. Applied economics, 34(9), pp. 1187-1193.
Antonis, A. , Constantinos, K. & Persefoni, T. (2013). Wagner’s law versus Keynesian hypothesis: evidence from pre-WWII Greece. Panoeconomicus, 60(4), pp. 457-472.
Bagdigen, M. & Cetintas, H. (2004). Causality between public expenditure and economic growth: The Turkish case. Journal of Economic and Social research, 6(1), pp. 53-72.
Bose, N., Haque, M. E. & Osborn, D. R. (2007). Public expenditure and economic growth: A disaggregated analysis for developing countries. The Manchester School, 75(5), pp. 533-556.
Bussiere, M. & Fratzscher, M. (2006). Towards a new early warning system of financial crises. Journal of International Money and Finance, 25(6), pp. 953-973.
Dimitraki, O. & Win, S. (2020). Military expenditure economic growth nexus in Jordan: an application of ARDL bound test analysis in the presence of breaks. Defence and Peace Economics, pp. 1-18.
Gangal, V. L. & Gupta, H. (2013). Public expenditure and economic growth: A case study of India. Global Journal of Management and Business Studies, 3(2), pp. 191-196.
Gibson, B. & Van Seventer, D. E. N. (1997). The macroeconomic impact of restructuring public expenditure by function in South Africa. South African Journal of Economics, 65(2), pp. 89-103.
Ighodaro, C. A. & Oriakhi, D. E. (2010). Does the relationship between government expenditure and economic growth follow Wagner’s law in Nigeria? Annals of University of Petrosani Economics, 10(2), pp. 185-198.
Ioan, C. A. & Ioan, G. (2020). An Equilibrium Model with Applications for some of the North and Central American Countries. Acta Universitatis Danubius. OEconomica, 15(7), pp. 330 – 439.
Ioan, G. & Ioan, C. A. (2018). Analysis of the Main Economic Indicators of the World. Acta Universitatis Danubius. Œconomica, 14(2), pp. 195-461.
Jobarteh, M. (2020). Testing Wagner’s Law for sub-Saharan Africa: A panel cointegration and causality approach. Theoretical & Applied Economics, 27(1), pp. 125 – 136
Mazorodze, B. T. (2018). Government expenditure and economic growth in Zimbabwe. African Journal of Business and Economic Research, 13(2), pp. 183-202.
Mose, N. G. (2020). Public Expenditure and County Economic Growth. 13th International Conference. Retrieved from https://euconference. egerton. ac. ke/index. php/eu_conference/13th_conference_2019/paper/viewPaper/86, date: 04. 13. 2020
Nyarko-Asomani, A.; Bhasin, V. K. & Aglobitse, P. B. (2019). Government capital expenditure, recurrent expenditure and economic growth in Ghana. Ghanaian Journal of Economics, 7(1), pp. 44-70.
Olisakwe, O. (2019). Public health expenditure, economic growth and health outcomes in Nigeria. Public Health, 6(1), pp. 23-32.
Oz-Yalaman, G.; Sevinc, D. & Sevil, G. (2019). The Impact of Government Size on Output Volatility: Evidence from World Economies. Business and Economics Research Journal, 10(4), pp. 761-776.
Sedrakyan, G. S. & Varela-Candamio, L. (2019). Wagner’s law vs. Keynes’ hypothesis in very different countries (Armenia and Spain). Journal of Policy Modelling, 41(4), pp. 747-762.
Tradingeconomics (2020). South Africa GDP growth. Retrieved from https://tradingeconomics. com/south-africa/gdp-growth, date: 04. 13. 2020.
Yildirim, J.; Sezgin, S. & Öcal, N. (2005). Military expenditure and economic growth in Middle Eastern countries: A dynamic panel data analysis. Defence and Peace Economics, 16(4), pp. 283-295.
Copyright (c) 2020 Sipho K. Mokoena, Mamoloko Rachidi, Collins C. Ngwakwe
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
The author fully assumes the content originality and the holograph signature makes him responsible in case of trial.