Bangladesh Bank Training Academy Journal

Abstract

The study strives to assess short-run and long-run relationship between government expenditure and GDP per capita in South Asian region using panel data over the period 2001-2014. To investigate this relationship Wagner’s hypothesis has been estimated which support the existence of long-run relationship between economic growth and growth of public expenditure. The methodology includes both Pedroni’s and Kao’s residual based cointegration tests which confi rmed that the variables used in the model are cointegrated. Granger causality test exhibits that there is causation from government fi nal consumption expenditure to GDP per capita. Error-correction model has been also used to check short-run dynamics. The study found both short- and long-term relationship between government expenditure and GDP per capita. Hence the study confi rms the validity of Wagner’s Law.