Open AccessTHE RELATIONSHIP BETWEEN ECONOMIC GROWTH AND GOVERNMENT SPENDING: A CASE STUDY OF OIC COUNTRIES
Author(s) -
Heri Sudarsono
Publication year - 2015
Publication title -
jurnal ekonomi pembangunan/jurnal ekonomi pembangunan
Language(s) - English
Resource type - Journals
eISSN - 2460-9331
pISSN - 1411-6081
DOI - 10.23917/jep.v11i2.322
Subject(s) - economics , granger causality , government spending , causality (physics) , government (linguistics) , public spending , public expenditure , macroeconomics , government expenditure , real gross domestic product , originality , development economics , public finance , politics , econometrics , political science , market economy , law , linguistics , philosophy , physics , quantum mechanics , creativity , welfare
This paper presents the results for testing for causal relationship between economic growth and goverment spending for OIC countries covering the time series data 1970~2006. There are usually two propositions regarding the relation between economic growth and government spending: Wagner’s Law states that as GDP grows, the public sector tends to grow; and the Keynesian framework postulates that public expenditure causes GDP to grow. The primary strength and originality of this paper is that we used aggregate data as well as disaggregate data for Granger causality test. By testing for causality between economic growth and government spending, we find that government spending does cause economic growth in Iran, Nigeria and Tunisia, which are compatible with Keynesian’s theory. However, the economic growth does cause the increase in goverment spending in Algeria, Burkina Faso, Benin, Indonesia, Libya Malaysia, Marocco, and Saudi, which are well-suited with Wagner’s law.