The Relationship between Government Expenditure and Economic Growth in Algeria: An Empirical Study of the period "1990-2012"

Lilia Ghedabna

Abstract


This study aims to examine the causality between government expenditure and economic growth and test the validity of the hypothesis of Wagner’s Law in Algeria, using the annual data for the period 1990-2012. We found from the Augmented Dickey-Fuller test (ADF), that the variables were non-stationary at levels except RGDP, but stationary in their first differences. By applying Vector Error Correction Model (VECM) and the Co-integration test, the result shows the existence of long-run relationship between total government expenditure and economic growth in Algeria. Further, The Granger Causality test indicate that there is a unidirectional effect from real total government expenditure to real gross domestic product which supports the Keynesian’s hypothesis. Thus, this study empirically does not support the existence of Wagner’s Law in case of Algeria.

Keywords


Real Total government expenditure, real GDP, economic growth, Wagner's Law, causality, Algeria.

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