A bound testing analysis of Wagner's law in Nigeria: 1970-2006

This study tests Wagner's law (the tendency for government activities to expand along with economic expansion) for Nigeria using annual time series data between 1970 and 2006. It adopts the bounds test approach proposed by Pesaran et al. (2001) based on unrestricted error correction model (UECM) and Toda and Yamamoto's (1995) Granger noncausality tests. Empirical results from the bounds test indicate that there exists no long-run relationship between government expenditure and output in Nigeria. In addition, Toda and Yamamoto's (1995) causality test results show that Wagner's law does not hold for more than the period being tested. Rather we found a weak empirical support in the proposition by Keynes that public expenditure is an exogenous factor and a policy instrument for increasing national income.