European Journal of Social Sciences – Volume 13, Number 4 (2010)

Cointegration-Causality Analysis between Public

Expenditures and Economic Growth in Pakistan

Jamshaid ur Rehman
Corresponding Author Lecturer, Department of Economics
Government College University Lahore, Pakistan
E-mail: jamshaidrehman@hotmail.com or jamshaidrehman@gcu.edu.pk
Tel: +92 300 4243693

Asim Iqbal
PhD Scholar, Department of Economics
Government College University Lahore, Pakistan
E-mail: asimiqba12@yahoo.com

M. Wasif Siddiqi
Associate Professor
Department of Economics, Government College University Lahore, Pakistan

Abstract
This study examines the nature and the direction of causality in Pakistan between public
expenditure and national income along with various selected components of public
expenditure by applying Toda-Yamamoto causality test to Pakistan for the period of 1971
to 2006. This study finds that there is a unidirectional causality running from GDP to
government expenditure, which supports the Wagner’s Law. Moreover, at disaggregate
level, results show that GDP only causes administrative expenditure while no causality
found in development expenditures, debt servicing and defense expenditures. On the whole
this study empirically does not support the existence of Keynesian hypothesis both at
aggregate and disaggregate levels in Pakistan that is public expenditure causing economic
growth.

Keywords: Public expenditures, economic growth, cointegration and causality

1. Introduction
The nexus between public expenditure and national income has been the focus of many public finance
studies both at theoretical and empirical levels. It is because the size of public expenditure has been
increasing over the time in all most all countries of the world. Moreover it’s the public expenditure
which involves economic benefits and costs (Grossman, 1988).
The focus has been mainly on two approaches, first, Wagner’s law approach (1883), which
states that national income causes public expenditure and second, Keynesian approach (1936), which
states that public expenditure causes national income. In both approaches the focus is only to the
unidirectional causal link between the public expenditure and national income. Moreover, according to
Keynesians, public expenditure is the real tool to boost the economic activities in the economy and also
a tool to bring stability in the short run fluctuations in aggregate expenditure (Singh and Sahni, 1984).
It is basically the positive impact of an autonomous public spending on economic growth (Faris, 2002).
Furthermore, the role of fiscal policy in boosting the rate of economic growth has also been the part of
556
 European Journal of Social Sciences – Volume 13, Number 4 (2010)

literature of endogenous growth that government spending directly affecting private production
functions (Barro, 1990).
In contrast, according to Wagnerians’ approach public expenditure growth is a natural
consequence of economic growth (Demirbas, 1999). The empirical evidences on these views are
reported in detail in the studies of Sakthivel and Yadav (2007), Singh and Sahni (1984) and Cheng and
Lai (1997) and the issues related to interpretation of Wagner’s Law has been discussed in detail by
Peacock and Scott (2000).
In these studies economist applied conventional regression analysis, causality testing, and more
recent time series analysis related to cointegration. But the results still differ significantly from country
to country and period to period. Therefore keeping in view all this, the objective of this study is to test
the nature and the direction of causality in Pakistan between public expenditure and national income
along with various selected components of public expenditure i.e. debt services, development
expenditure, administration expenditure and defense services. Since Pakistan is one of those
developing countries where public sector takes in a relatively large share of society’s economic
resources, thus influence economic growth. Therefore this study will reveal true patterns of impact of
government spending on Pakistan’s economic development. For this purpose, the study utilizes the
Toda-Yamamoto Augmented Granger test along with other time series analysis such as unit root and
cointegration tests.
The remaining structure of the study is as follows: Section 2 discusses the review of literature,
Section 3 explains methodological issues and data sources, Section 4 reports empirical results and
Section 5 ends with conclusion.

2. Review of Literature
The casual link between public expenditure and national income was analyzed in detail by Singh and
Sahni (1984). Thereon many studies have been conducted in this direction. The findings of these
studies produce contradictory results. For example Ahsan et al. (1989), Ram (1986), Holmes and
Hutton (1990) and Singh and Sahni (1984) concluded that public expenditure expansion has significant
effect on national income growth. On the contrary, Barth, et al. (1990) and Landau (1983, 1986) found
that public expenditure expansion has negative effect on national income growth for both developed
and less developed countries. In a most recent study conducted by Sakthivel and Yadav (2007) for
India found bidirectional causality between national income and public expenditure and economic
services. They also analyzed causality between income, defense services and interest payments.
Defense services found independent and interest payments have unidirectional relationship with
income.
Some studies also found no pattern of causality between public expenditure and national
income growth, for instance, Ram (1986) in his study of 63 countries, Ahsan et al. (1990) for US data
and Conte and Darrat (1988) for OECD countries, found no consistent causality between these two
variables. Afxentiou and Serletis (1991) found the contradicting results to what has been subjected by
the Wagnerian and Keynesian in Canada over the period of 1947 to 1986. Ahsan et al. (1992) found no
evidence of causality at the bivariate level in case of Canada, Germany and the US. However, this
result was no longer valid in trivariate context (third variable was the stock of money). Cheng and Lai
(1997) found bidirectional causality between government expenditure and economic growth in South
Korea and their results support both the conventional frameworks of Keynes and Wagner. Similarly
Park (1996) studied both Wagner’s and Keynes hypothesis for Korea using different functional forms
nonetheless he strongly supported the Wagner’s law in four out of six functional forms. Abizadeh and
Yousefi (1998) indicated that private sector’s income granger cause expenditure growth.

557
European Journal of Social Sciences – Volume 13, Number 4 (2010)

3. Methodology and Empirical Analysis

The main objective of this study is to investigate the causality between government expenditures and
economic growth. The study employs the Granger causality test based on augmented level VAR with
integrated and cointegrated processes developed by Toda and Yamamoto (1995). Toda and Yamamoto
(1995) procedure uses a Modified Wald (MWALD) test for restrictions on the parameters of the VAR
(k) model. This test has an asymptotic chi-squared distribution with k degrees of freedom in the limit
when a VAR (k+dmax) is estimated (where k is the lag order of VAR and dmax is the maximal order of
integration for the series in the system). The underline objective of the Toda-Yamamoto causality test
is to overcome the problem of invalid asymptotic critical values when causality tests are performed in
the presence of nonstationary series or even cointegrated.
Two steps are involved to implement the Toda-Yamamoto based Granger causality test. The
first step involves determination of the lag length (k) and the maximum order of integration (dmax) of
the variables in the system. Given VAR (k) selected, and the order of integration (dmax) is determined, a
level VAR can then be estimated with a total of k+dmax lags. The second step is to apply standard Wald
tests to the first k VAR coefficient matrix to make Granger causal inference.
The relationship between government expenditures and economic growth under the two
divergent theories has already been discussed in brief detail. In order to test for Toda and Yamamoto
(1995) based Granger causality between aggregate government expenditures and economic growth the
study estimates the following bivariate VAR (k+dmax) Model-1:
⎡GDPt ⎤ ⎡α 1 ⎤ k + d ⎡ β 1i δ 1i ⎤ ⎡GDPt −i ⎤ ⎡ε 1t ⎤
⎢GE ⎥ = ⎢α ⎥ + ∑ ⎢ β δ ⎥ ⎢GE ⎥ + ⎢ε ⎥ (1)
⎣ t ⎦ ⎣ 2 ⎦ i =1 ⎣ 2 i 2 i ⎦ ⎣ t −i ⎦ ⎣ 2 t ⎦
where
GDPt = Real Gross Domestic Product at time t.
GEt = Aggregate Government Expenditures at time t.
β ' s and δ ' s are the coefficients of GDPt and GEt respectively.
ε 1t and ε 2t are error terms that are assumed to be white noise.
t is the time subscript
The optimal lag length (k) of the VAR is determined by the Schwarz Information Criterion
(SIC). The null hypothesis can be drawn as “GEt does not Granger-cause GDPt” if δ 1i =0 (first k
coefficients are used in the computation of the Wald test) against the alternate hypothesis “GEt does
Granger-cause GDPt” if δ 1i ≠ 0. Similarly, other hypothesis can be drawn between GDPt and GEt.
The study is also aimed to investigate causality between different components of government
expenditures1 and economic growth. The study formulates the following VAR (k+dmax) Model-2 for
this purpose:
⎡GDPt ⎤ ⎡α 3 ⎤ ⎡γ 1i η1i φ1i θ 1i ω 1t ⎤ ⎡GDPt −i ⎤ ⎡ε 3t ⎤
⎢ ⎥ ⎢ ⎥ ⎢γ
⎢ DE t ⎥ ⎢α 4 ⎥ k + d ⎢ 2i η 2i φ 2i θ 1i ω 2i ⎥⎥ ⎢⎢ DE t −i ⎥⎥ ⎢⎢ε 4t ⎥⎥
⎢ AE t ⎥ = ⎢α 5 ⎥ + ∑ ⎢γ 3i η 3i φ 3i θ 1i ω 3i ⎥ ⎢ AE t −i ⎥ + ⎢ε 5t ⎥
⎢ ⎥ ⎢ ⎥ i =1 (2)
⎢ ⎥⎢ ⎥ ⎢ ⎥
⎢ DS t ⎥ ⎢α 6 ⎥ ⎢γ 4 i η 4i φ 4i θ 1i ω 4i ⎥ ⎢ DS t −i ⎥ ⎢ε 6t ⎥
⎢ ⎥ ⎢ ⎥ ⎢γ η 5i φ 5i θ 5i ω 5i ⎥⎦ ⎢⎣ DFt −i ⎥⎦ ⎢⎣ε 7 t ⎥⎦
⎣ DFt ⎦ ⎣α 7 ⎦ ⎣ 5i
where
DEt = Development Expenditures at time t.
AEt = Administration Expenditures at time t.
DSt = Debt Services at time t.
DFt = Defense Services at time t.
1
Development Expenditures, Administrative Expenditures, Debt Services and Defense Services
558
 European Journal of Social Sciences – Volume 13, Number 4 (2010)

α 3 , α 4 , α 5 , α 6 and α 7 are constant terms in VAR (k+d) model.

γ ' s, η ' s, φ ' s, θ ' s, and ω ' s are the coefficients of GDPt, DEt, AEt, DSt and DFt respectively.
ε 3t , ε 4t , ε 5t ,ε 6t and ε 7t are error terms that are assumed to be white noise.
Usual Wald tests are then applied to the first k coefficient matrices using the standard chi-
square statistic. The null hypotheses can be drawn as DEt, AEt, DSt and DFt “does not Granger-cause”
GDPt if η1i = 0 , φ1i = 0 , θ 1i = 0 and ω 1i = 0 respectively against the alternative hypotheses as DEt,
AEt, DSt and DFt “does Granger-cause” GDPt if η1i ≠ 0 , φ1i ≠ 0 , θ 1i ≠ 0 and ω 1i ≠ 0 respectively.
Similarly, other hypothesis can be drawn for unidirectional and bidirectional causality among rest of
the variables.

3.1. The Data Sources

This study use annual series of Gross Domestic Product (GDP) and Government Expenditure (GE)
along with its various components [Defense Expenditure (DE), Administrative Expenditure (AE),
Development Expenditure (DE), and Debt Services (DS)] in Pakistan for the period of 1971 to 2006
drawn from the Pakistan Economic Survey2. All the variables were converted into real terms using the
GDP deflator. We used annual data because public expenditure is hardly sensitive to seasonal and even
cyclical fluctuations (Singh and Sahni, 1984). The data is graphically shown from Figure 1 to Figure 6
in order to find the trends in the series. A visual plot of the data is usually the first step in the analysis
of any time series. The upward trend implying that these variables may move together.

Figure 1 Figure 2
60,000 10,000
Government Expenditures
Gross Domestic Product

50,000
8,000

40,000
6,000
30,000
4,000
20,000

2,000
10,000

0 0
1975 1980 1985 1990 1995 2000 2005 1975 1980 1985 1990 1995 2000 2005

Years Y ears

Figure 3 Figure 4
Administration Expenditures

1,200 2,800
Development Expenditures

1,000 2,400

2,000
800
1,600
600
1,200
400
800
200 400

0 0
1975 1980 1985 1990 1995 2000 2005 1975 1980 1985 1990 1995 2000 2005

Years Years

Figure 5 Figure6
5,000 2,400
Defence Expenditures

4,000 2,000
Debt Services

3,000 1,600

2,000 1,200

1,000 800

0 400
1975 1980 1985 1990 1995 2000 2005 1975 1980 1985 1990 1995 2000 2005

Years Years

2
Various issues such as 1983-84, 1987-88, 1993-94, 1997-98 and 2006-07.
559
European Journal of Social Sciences – Volume 13, Number 4 (2010)

3.2. Unit Root Tests

The results regarding the order of integration of the series have been determined by different unit root
tests. In ADF test, optimum lag length, shown in lags column (see Table-1), has been determined using
Schwarz information criterion (SIC). Similarly the PP test used, which has the extra advantage over the
Dickey-Fuller test that is, it has been adjusted to take into account of serial correlation by using the
Newey-West (1994) covariance matrix. In PP tests, Bartlett kernel (default) spectral estimation method
and Newey-West bandwidth (automatic selection) have been used. The order of integration of variables
is based on the tests that included the intercept and trend in the test equations of unit root (Table -1).
The results indicate that the government expenditure and real GDP are not stationary in their
level but are stationary at their first difference in both unit root statistics, similar conclusion is drawn
with other components of government expenditure. Hence the null hypothesis of non-stationary for all
variables is rejected at first difference at the particular level of significance described by the p-values in
the parenthesis.

Table I: Unit Root Tests

Augmented Dickey-Fuller Test Phillips-Perron Test

Variables
Intercept Intercept and Trend Intercept Intercept and Trend
2.614721 -1.666075 1.976801 -0.677657
GDP
(1.0000) (0.7421) (0.9998) (0.9670)
-1.009145 -1.507154 -1.022339 -1.619444
GE
(0.7392) (0.8079) (0.7344) (0.7646)
0.259928 -3.381441 0.081978 -3.293510
AE
(0.9725) (0.0703) (0.9597) (0.0840)
-1.055577 -1.528547 -1.055577 -1.699296
DE
(0.7221) (0.8002) (0.7221) (0.7303)
-1.288398 -0.650358 -1.312401 -0.814815
DS
(0.6240) (0.9692) (0.6128) (0.9545)
-1.508400 -1.151448 -1.546712 -1.063527
DF
(0.5174) (0.9046) (0.4986) (0.9210)
-3.565679 -4.286172 -3.726749 -4.381435
ΔGDP
(0.0120) (0.0092) (0.0080) (0.0073)
-4.982231 -4.996093 -4.998632 -4.940518
ΔGE
(0.0003) (0.0016) (0.0003) (0.0018)
-8.600772 -8.553622 8.895805 -9.102005
ΔAE
(0.0000) (0.0000) (0.0000) (0.0000)
-4.839751 -4.768161 -4.843253 -4.771781
ΔDE
(0.0004) (0.0028) (0.0004) (0.0027)
-6.831317 -7.063770 -6.770676 -6.931712
ΔDS
(0.0000) (0.0000) (0.0000) (0.0000)
-3.598757 -3.712445 -3.673306 -3.777408
ΔDF
(0.0111) (0.0351) (0.0092) (0.0303)
Notes: 1. Values in parenthesis are p-values for ADF and PP tests.
2. Δ = first difference

3.4. Cointegration
Having tested the stationarity of each time series, and confirmed that each series have the same order
of homogeneity (d), the next step is to search for cointegration between Xt and Yt. In this step, this
study would investigate whether there is a long run relationship between the stochastic trends of Xt and
Yt. In order to find out any type of causality between Xt and Yt, they must be cointegrated in the
Granger sense. This precondition can be confirmed by using either the Engle-Granger two-step
cointegration procedure or Johansen-Juselius rank-based cointegration test. The Engle-Granger
procedure is valid for two variables. In the case of three or more variables, Johansen (1988), and
Johansen and Juselius (1990) have introduced an appropriate method for cointegration.
560
 European Journal of Social Sciences – Volume 13, Number 4 (2010)

Johansen (1988), and Johansen and Juselius (1990) have developed a maximum likelihood
testing procedure on the number of cointegrating vectors, which also includes testing procedures for
linear restrictions on the cointegrating parameters, for any set of variables. Two test statistics that are
used to identify the number of cointegrating vectors, namely the trace test statistic and the maximum
eigen-value test statistic. The trace statistic tests the null hypothesis that the number of distinct
cointegrating relationships is less than or equal to ‘r’ against the alternative hypothesis of more than ‘r’
cointegrating relationships, and is defined as:
p ∧
λtrace (r ) = −T ∑ ln(1 − λ
j = r +1
j ) (5)

where
λj = The eigen-values.
T = Total number of observations.
The maximum likelihood ratio or put another way, the maximum Eigen-value statistic, for
testing the null hypothesis of at most ‘r’ cointegrating vectors against the alternative hypothesis of
‘r+1’ cointegrating vectors, is given by:
∧
λ max ( r , r + 1) = −T ln(1 − λ r +1 ) (6)
Johansen (1988) argues that, λtrace and λmax statistics have non-standard distributions under the
null hypothesis, and provides approximate critical values for the statistic, generated by Monte Carlo
methods.
Since both series found to be integrated of order one i.e., I(1), the cointegration hypothesis
between the variables is examined by the Johansen Cointegration (1988, 1990) test. The study utilizes
both the Trace and maximum Eigen value tests under the null hypothesis of no cointegrating vector
(see Table-II).
Since 20.18844 exceeds the 5 percent critical value of 19.38704 of the λmax statistic, it is
possible to reject the null hypothesis of no cointegrating vectors and accept the alternative of one or
more cointegrating vectors in bivariate cointegration. Next, we use the λmax (1) statistic to test the null
of r ≤ 1 against alternative of two cointegrating vector, again the 15.78514 is greater than the 5 percent
critical value of 12.54798, indicate that we can reject the null hypothesis at this significance level. The
λtrace statistic also helps to clarify the issue.

Table II: Johansen Cointegration Test

Critical Values Critical Values

Max-Eigen Statistic Trace Statistics
H0 Ha 5 percent Prob. 5 percent Prob.
Cointegration between GDPt and government expenditures at aggregate level GEt
r = 0* r=0 20.18844 19.38704 0.0382 35.97358 25.87211 0.0020
r ≤ 1* r=1 15.78514 12.54798 0.0137 15.78514 12.51798 0.0137
Cointegration between GDPt and government expenditures at disaggregate level AEt, DEt, DFt and DSt
r = 0* r=0 65.35101 38.33101 0.0000 172.9430 88.80380 0.0000
r ≤ 1* r=1 43.39042 32.11832 0.0014 107.5920 63.87610 0.0000
r ≤ 2* r=2 32.40181 25.82321 0.0059 64.20156 42.91525 0.0001
r ≤ 3* r=3 23.02013 19.38704 0.0141 31.79975 25.87211 0.0081
r≤4 R =4 8.779624 12.51798 0.1944 8.779624 12.51798 0.1944
Note: * indicates the rejection of null hypothesis at 5% level of significance.

Similarly, in multivariate case both the λmax and λtrace statistics indicate that data-generating
process contain only four cointegrating vector. However, the possibility of fifth cointegrated vector is
rejected by both the statistics. Thus the empirical support for at least one cointegration vector implies
at that all six variables are cointegrated and follow a common long–run equilibrium path. Moreover,
the evidence of cointegration also rules out the possibility of spurious correlation. Nevertheless, the

561
European Journal of Social Sciences – Volume 13, Number 4 (2010)

cointegration results does not point out the direction of the long-run relationship among variables,
therefore the next step is to carry out Granger-causality tests, it is a technique searching the direction of
causality between variables (Kalyoncu and Yucel, 2006) after the existence of cointegration.

4. Granger Causality Based on Toda-Yamamoto Methodology

The empirical results of Granger causality test of Model-1 and Model-2, based on Toda and Yamamoto
(1995) methodology are reported in Table 3. The optimum lag length of VAR in both models is k=2
based on SIC criterion. However, all variables are stationary at first difference. This means that dmax =
1. So, the study estimate a system of VAR at levels with a total of k+dmax= 2+1 = 3 lags in both
models. However, causality will be tested in four possible ways. Firstly, for the existence of Wagner’s
law with the possibility of unidirectional causality running from GDP and public expenditure at
aggregate or among one of its components at disaggregate levels. Secondly, unidirectional relationship
for the existence of Keynsian hypothesis runs from public expenditure to GDP. Thirdly, for the
existence of bidirectional causality, that is the feedback of both variables and, finally, lack of any
causal relationship among variables.
The results in Table - 3 suggest that in Model-1 causality is running from GDPt to GEt and no
evidence of bi-directional causality is found between these two variables. The probability values of F
and χ2 statistics are given, the low P values suggested we can reject null hypothesis. Hence we found
unidirectional causality running from economic growth to government expenditure for Pakistan. The
causality results of Model-2 between economic growth and disaggregated government expenditures
reveal that there is only a single unidirectional causality running from GDPt to AEt and no other
direction is found in any other variables.

Table III: Toda-Yamamoto Granger Causality Test at Aggregate and Disaggregate Levels

Test Statistics
Null Hypothesis χ2-statistic F-statistic
Value d.f Prob. Value d.f Prob.
Causality between GDPt and GEt (Model-1)
GEt does not Granger 0.7898 0.7914
0.472055 2 0.236027 (2,26)
cause GDPt Cannot Reject H0 Cannot Reject H0
GDPt does not Granger 0.0051 0.0118
10.57644 2 5.288222 (2,26)
Cause GEt Reject H0 Reject H0
Causality between GDPt and AEt, DEt, DFt and DSt (Model-2)
AEt does not Granger 0.2868 0.3119
2.497670 2 1.248835 (2,17)
cause GDPt Cannot Reject H0 Cannot Reject H0
GDPt does not Granger 0.0811 0.1107
5.023650 2 2.511825 (2,17)
cause AEt Reject H0 Cannot Reject H0
DEt does not Granger 0.9632 0.9633
0.074993 2 0.037497 (2,17)
cause GDPt Cannot Reject H0 Cannot Reject H0
GDPt does not Granger 0.3667 0.3874
2.006503 2 1.003251 (2,17)
Cause DEt Cannot Reject H0 Cannot Reject H0
DSt does not Granger 0.1474 0.1778
3.829795 2 1.914897 (2,17)
cause GDPt Cannot Reject H0 Cannot Reject H0
GDPt does not Granger 0.7300 0.7342
0.629313 2 0.314656 (2,17)
cause DSt Cannot Reject H0 Cannot Reject H0
DFt does not Granger 0.2909 0.3158
2.469216 2 1.234608 (2,17)
cause GDPt Cannot Reject H0 Cannot Reject H0
GDPt does not Granger 0.2035 0.2324
3.183845 2 1.591922 (2,17)
cause DFt Cannot Reject H0 Cannot Reject H0

These results in both models on aggregate and disaggregate level of expenditures support the
Wagner’s hypothesis, which explains that increase in GDP causes growth in the government
562
 European Journal of Social Sciences – Volume 13, Number 4 (2010)

expenditures and rejects the hypothesis that public expenditures amplify the economic growth at both
aggregate and disaggregate levels. Hence in Pakistan public expenditure growth is a natural
consequence of economic growth.
There are many possible explanations for the nonexistence of Keynesian hypotheses in case of
Pakistan. First, large part of public expenditure is devoted to current expenditure the major components
of it are defense spending and interest payments. In 2006-07 the share of current expenditure in total
expenditure was 82.3 percent (PES, 2007-08). Second, the impact of spending on social sector such as
education particularly higher education, health, poverty alleviation programs and infrastructure come
about with time-lag. Third, despite the government efforts of fiscal transparency and improving
expenditure management, still government activities on development actually impede it due to lack of
effectiveness and efficiency in the government policies vis-à-vis private sector. This inefficiency of
public sector is due to elements of corruption and political favoritism.

5. Conclusion
This study utilizes the annual data for Pakistan to examine the relationship between economic growth
and government expenditure both at bivariate (aggregated) and multivariate (disaggregated) systems,
based on cointegrated level and Toda-Yamamoto Augmented Granger Causality. On the basis of our
empirical results, we conclude that economic growth causes government expenditure at bivariate level.
Thus supportive of Wagner’s hypothesis that increased in GDP causes growth in the government
expenditure. The study rejects the hypothesis that public expenditures amplify the economic growth at
both aggregate and disaggregate levels. Surprisingly at multivariate level economic growth only causes
the administrative expenditures, the other variables are development expenditures, debt servicing and
defense expenditure. Finally, the study does not support the existence of Keynesian hypothesis that
growth in public expenditures cause economic growth. In a nutshell causality tests apparently indicate
that only Wagner’s law of fiscal activism is valid in Pakistan.

563
European Journal of Social Sciences – Volume 13, Number 4 (2010)

References
[1] Abizadeh, Sohrab and Yousefi, Mahmood, 1998. “An Empirical Analysis of South Korea’s
Economic Development and Public Expenditure Growth”, Journal of Socio-Economics, 27 (6),
pp. 687-700.
[2] Afxentiou, P.C. and Serletis, A. 1991. “A Time-Series Analysis of the Relationship between
Government Expenditure and GDP in Canada”, Public Finance Quarterly, 19(3), pp. 316-333.
[3] Ahsan S., Kwan A. and Sahni B. 1989. “Causality between Government Consumption
Expenditures and National Income: OECD Countries”, Public Finance, 44(2), pp. 204-224.
[4] Ahsan, S. M., Kwan, A. C., and Sahni, B. S. 1992. “Public Expenditure and National Income
Causality: Further Evidence on the Role of Omitted Variables”, Southern Economic Journal,
58(3), pp. 623-634.
[5] Ahsan, Syed M., Andy C. C. Kwan and Balbir S. Sahni, 1989. “Causality between Government
Consumption Expenditure and National Income: OECD Countries” Public Finance, 44(2), pp.
204-224.
[6] Al-Faris, A. F. (2002) “Public Expenditure and Economic Growth in the Gulf Cooperation
Council Countries”, Applied Economics, 34(9), pp. 1187-1193.
[7] Barro, R.J. (1990) “Government Spending in a Simple Model of Endogenous Growth”, The
Journal of Political Economy, 98(5), pp. 103-125.
[8] Barth JR, Keleher RE, Russek FS (1990) “The Scale of Government and Economic Activity”,
Southern Economic Journal, 13, pp.142–183.
[9] Cheng, B.S. and T.W. Lai (1997) “Government Expenditure and Economic Growth in South
Korea: A VAR Approach” Journal of Economic Development, 22(1), pp. 11-24.
[10] Conte, M. A. and Darrat, Ali F, 1988. “Economic Growth and the Expanding Public Sector: A
Reexamination”, The Review of Economics and Statistics, 70(2), pp. 322-30.
[11] Demirbas, S. 1999. “Co-integration Analysis-Causality Testing and Wagner’s Law: The Case
of Turkey 1950-1990”, Discussion Papers in Economics, Department of Economics, University
of Leicester, UK.
[12] Holmes, James M & Hutton, Patricia A, 1990. “On the Causal Relationship between
Government Expenditures and National Income”, The Review of Economics and Statistics,
72(1), pp. 87-95.
[13] Johansen, S. 1988. “Statistical Analysis of Cointegration Vectors”, Journal of Economic
Dynamics and Control, 12(2-3): pp. 231-254.
[14] Johansen, S. and K. Juselius, 1990. “Maximum Likelihood Estimation and Inference on
Cointegration with Application for the Demand for Money”, Oxford Bulletin of Economics and
Statistics, 52(2), pp. 169-210.
[15] Kalyoncu, Huseyin and Yucel, Fatih, 2006. “An Analytical Approach on Defense Expenditure
and Economic Growth: The Case of Turkey and Greece”, Journal of Economic Studies, 33(5),
pp. 336-343.
[16] Landau, Daniel, 1983. “Government Expenditure and Economic Growth: A Cross-Country
Study” Southern Economic Journal, 49(3), pp.783–792.
[17] Landau, Daniel (1986) “Government Expenditure and Economic Growth in the Less Developed
Countries, an Empirical Study for 1960-80” Economic Development & Cultural Change, 35(1),
pp. 36-75.
[18] Newey, W. and K. West, 1994. “Automatic Lag Selection in Covariance Matrix Estimation”,
Review of Economic Studies, 61(4), pp. 631-653.
[19] Park, W. K. 1996. “Wagner’s Law vs Keynesian Paradigm: The Korean Experience” Public
Finance, 51, pp. 71-91.
[20] Peacock, A. and Scott, A. 2000. “The Curious Attraction of Wagner’s Law” Public Choice,
102(1-2), pp.1-17.

564
 European Journal of Social Sciences – Volume 13, Number 4 (2010)

[21] Ram, R. 1986, “Causality between Income and Government Expenditure: A Broad
International Perspective”, Public Finance, 41(3), pp. 393-414.
[22] Sakthivel, P. and Inder Sekhar Yadav, 2007. “Causality between Public Expenditure and
National Income in India: A Reexamination”, The Icfai University Journal of Public Finance,
5(4), pp. 36-51.
[23] Singh, B. and Sahni, B. S. 1984. “Causality between Public Expenditure and National Income”,
The Review of Economics and Statistics, 66(4), pp. 630-644.
[24] Toda, H.Y. and T. Yamamoto, 1995. “Statistical Inference in Vector Autoregressions with
Possibly Integrated Processes”, Journal of Econometrics, 66(1-2), pp. 225-250.
[25] Wagner, A. (1883), ‘Three Extracts on Public Finance’, in R. A. Musgrave and A. T.

565