The purpose of this paper is to examine the direction of causality between government expenditure and economic growth in the Economic Community of West African States (ECOWAS) countries.
The study adopts the recently developed panel vector autoregressive (PVAR) by Love and Abrrigo (2015) and two-step system generalized method of moments (GMM) in order to resolve the inherent problems of endogeneity and persistence in economic data.
The results from the study show no evidence of either unidirectional or bidirectional causal relationship between government expenditure and economic growth in ECOWAS member countries.
Unlike previous studies that adopted cointegration technique, we adopt a system GMM through the application of a dynamic PVAR framework within the framework of panel data analysis in order to address the possibility of feedback effect in the causal relationship between government expenditure and economic growth. In addition the PVAR also allows us to model shocks across countries.
