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Please use this identifier to cite or link to this item: http://purl.umn.edu/37515

Title: Government Expenditure and Economic Growth: Evidence from Trivariate Causality Testing
Authors: Loizides, John
Vamvoukas, George
Keywords: public sector growth
economic growth
bivariate and trivariate causality tests
error correction modeling
JEL Codes: H21
Issue Date: 2005-05
Abstract: This paper seeks to examine if the relative size of government (measured as the share of total expenditure in GNP can be determined to Granger cause the rate of economic growth, or if the rate of economic growth can be determined to Granger cause the relative size of government. For this purpose, we first use a bivariate error correction model within a Granger causality framework, as well as adding unemployment and inflation (separately) as explanatory variables, creating a simple ‘trivariate’ analysis for each of these two variables. The combined analysis of bivariate and trivariate tests offers a rich menu of possible causal patterns. Using data on Greece, UK and Ireland, the analysis shows: i) government size Granger causes economic growth in all countries of the sample in the short run and in the long run for Ireland and the UK; ii) economic growth Granger causes increases in the relative size of government in Greece, and, when inflation is included, in the UK.
URI: http://purl.umn.edu/37515
Identifiers: Print ISSN 1514-0326
Online ISSN 1667-6726
Institution/Association: Journal of Applied Economics>Volume 8, Number 01, May 2005
Total Pages: 28
From Page: 125
To Page: 152
Collections:Volume 08, Number 1, May 2005

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