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Economic and Financial Review

Keywords

Globalisation, Government size, financial openness, trade openness, ECM, Nigeria, Economic Services, ECO, Compensation Hypothesis

Abstract

The link between globalisation and government expenditure has remained contentious in the literature particularly from a disaggregated perspective. Hence, this study examines the compensation hypothesis by analysing the relationship between globalisation and government size in Nigeria for the period 1981 to 2018. Globalisation is proxied by trade and financial openness while government size is measured by final consumption expenditure by the general government (FCE), share of government expenditure on economic services (ECO), share of government expenditure on social and community services (SCS), and share of government expenditure on transfers (TRF). The study employed the error correction modelling technique and the results of the study support the validity of the compensation hypothesis for three models (FCE, SCS, and TRF) but not for the ECO model. The study concludes that the compensation hypothesis cannot be claimed to hold for the Nigerian economy using aggregate data but rather the validity of the compensation hypothesis is component specific with respect to government expenditure. Also, results of this study showed that the findings of previous studies based on aggregate data cannot be generalised for all the components of government expenditures

Issue

1

Volume

58

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