Re-Examination of Wagners Hypothesis: Implications for the Dwindling Oil Revenue in Nigeran Economy

Abstract

This study is set out to examine the impact of aggregate government expenditure on the growth of Nigeria’s economy on the basis of Wagner’s hypothesis. The methodology adopted for the empirical study was multiple regression method employing ordinary least square (OLS) technique to examine the properties of the time-series data used for the analysis. These include unit root tests, tests for co-integration as well as Vector Error Correction (VEC) tests, to determine the short-run and long run relationship of the series used. Granger causality test was also carried out to confirm the presence or absence of any feedback effect and the direction of such feedback (if any) between the variables under review. The regression results show that aggregate government expenditure is positively and significantly related to economic growth in the long run. Secondly, capital and recurrent expenditure components of government expenditures in Nigeria revealed an inverse relationship with economic growth. Finally, a unidirectional causality running from economic growth to government expenditure without feedback was confirmed in line with Wagner’s submission. Based on the findings above, the following prescriptions were proffered: government should increase its aggregate expenditures and closely monitor its execution to ensure that such expenditure is used for what it was budgeted for; cut-down on its wasteful recurrent expenditures so as to accelerate economic growth; etc