Government Size and Economic Growth in Nigeria: A Test of Wagner's Hypothesis

Authors

M. Y. Dogo, Central Bank of NigeriaFollow
U. M. Okpanachi, Central Bank of NigeriaFollow
A. A. Muhammad, Central Bank of NigeriaFollow
C. V. Umolu, Central Bank of Nigeria
K. J. Ajayi, Central Bank of NigeriaFollow

Publisher

Central Bank of Nigeria

Keywords

Wagner's Law, Government Expenditure, Granger Causality, Cointegration, Vector Error Correction Analysis (VECM), Economic Growth, Fully Modified Ordinary Least Square (FMOLS), Error Correction Model (ECM), Nigeria

Abstract

This paper attempts an empirical validation of Wagner's law in Nigeria using quarterly data for the period 1982 to 2012. The hypothesis that real income does not Granger-cause government expenditure was rejected. Adopting the Fully Modified Ordinary Least Square (FMOLS) regression techniques, the study found support for the Wagner's hypothesis in Nigeria. The analysis provided empirical evidence to support the existence of a long-run equilibrium relationship between economic activity and government expenditure in Nigeria. Overall, the results corroborated the Goffman's version of the Wagner's law in Nigeria. Thus, government needs to create fiscal space to enable deployment of more resources in growth-enhancing activities, while at the same time putting in place policies aimed at raising revenues concomitantly.

Author Bio

The authors are staff of the Monetary Policy Department, Central Bank of Nigeria.

Publication Title

CBN Economic and Financial Review

Issue

3

Volume

51

Recommended Citation

Dogo, M. Y., Okpanachi, U. M., Muhammad, A. A., Umolu, C. V. & Ajayi, K. J. (2013). Government Size and Economic Growth in Nigeria: A Test of Wagner's Hypothesis. CBN Economic and Financial Review. 51(3), 57-85.