Cointegration Analysis-Causality Testing and Wagner’s Law: The Case of Nigeria, 1970–2001

The objective of this paper was to examine the causal relationship between national income and public expenditures in Nigeria in the shortand long-run. The paper adopted the cointegration procedure to investigate the causal relationship between public expenditure and national income (per capita GNP) for Nigeria over the period 1970 to 2001. The VECM was estimated to ascertain the direction of causality between the two series. The causality test results indicated that economic growth granger-caused public expenditure, both in the short-and long run. This finding supported the Wagner’s hypothesis for Nigeria.