ECONOMIC GROWTH NEXUS IN NIGERIA: EVIDENCE FROM NONLINEAR ARDL AND CAUSALITY APPROACHES

The kernel of the debate on the relation between government spending and economic growth is whether the former causes the latter or the latter causes the former. In addition, there is the issue of possibility of nonlinearity in the relation between government expenditure and economic growth. Purpose. The purpose of this paper is to examine the relations between government expenditure and economic growth in Nigeria. Design/Methodology/Approach. The nonlinearity and causality in the relation between government expenditure and economic growth are examined using nonlinear autoregressive distributed lag model (NARDL), vector error correction model (VECM) and causality. Findings/Implications. The findings show the existence of cointegration and nonlinear effect on the relation between government expenditure and economic growth in both long- and short-run. The results equally show unidirectional causality that runs from economic growth to government expenditure thus providing support for Wagner’s law in Nigeria. Originality. The findings from this study suggest that nonlinearity and asymmetry should be taken into account when examining the nexus between government expenditure and economic growth.