Abstract
M.Comm.
This study attempts to investigate the validity of Wagner’s law and the Keynesian
perspective of a long-run relationship and causality between government expenditure and
economic growth in SADC countries from 1988 to 2004. In order to determine the
existence of the long-run relationship and causality, a univariate analysis is carried out to
assess whether panel series are integrated at the same order. Subsequently, this study
finds that all panel series under investigation are indeed integrated of the same order.
Therefore, the second stage consists of assessing whether there is cointegration between
government expenditure and economic growth. This study applies two procedures of
panel cointegration, namely, the Pedroni panel cointegration test and the Kao panel
cointegration test. Both procedures find that certainly a long-run relationship exists
between government expenditure and economic growth in the SADC. Moreover, since
two equations are estimated in this study, there is unidirectional causality. In both
equation 1 and 2, the study finds that economic growth Granger causes government
expenditure in both the long and the short-run which is consistent with the Wagner’s law
than the Keynesian stance.