Testing the Wagner’s Hypothesis on Public Expenditure and Output Growth Causality in Nigeria

Abstract

This study tests the validity of Wagner's hypothesis on public expenditure and output growth in Nigeria from 1970 -2016 using annual time series data. Phillips Perron unit root test (PP), Johansen cointegration test, Vector Error Correction Model (VECM) and pair wise Granger causality econometric analytical methods were employed. The stationary property of the research variables was confirmed and other tests in the study revealed a unidirectional causation from government expenditure to economic growth in the country. The finding of the study therefore invalidates the applicability of Wagner's hypothesis in Nigeria within the study period. The study recommends the need for appropriate policies on effective utilization of public fund knowing that it has positive effect on the level of economic growth in the country.