Title: A validation of Wagner's Law: a case study of Sri Lanka

Authors: Ali Salman Saleh; Reetu Verma; Ranjith Ihalanayake

Addresses: Department of Finance and Economics, College of Business and Economics, Qatar University, Doha, Qatar ' School of Accounting, Economics and Finance, University of Wollongong, Northfields Avenue, Wollongong NSW 2500, Australia ' Centre for Strategic Economic Studies, School of Accounting and Finance, Faculty of Business and Law, Victoria University, Footscray Park Campus, Ballarat Rd, Footscray VIC 8001, Australia

Abstract: This study provides evidence on the validity of Wagner's Law on the impact of government spending on economic growth in Sri Lanka. To test for stationarity, we use the Narayan and Popp's (2010) new Perron-type innovational unit root test; and to test for the long-run relationship, the study uses Hatemi's (2008) co-integration method. This study finds that a long-run relationship exists between GDP, consumption and investment expenditure. Various policy implications have also emerged from these findings. Studies on the impact of government spending on economic growth in the case of South Asian countries, and particularly for Sri Lanka, are very limited. The study disaggregates public expenditure into its two components and uses advanced methodologies which take into account structural breaks.

Keywords: government spending; economic growth; Wagner's Law; structural breaks; co-integration; Sri Lanka.

DOI: 10.1504/IJEBR.2017.085551

International Journal of Economics and Business Research, 2017 Vol.14 No.1, pp.29 - 43

Received: 18 Aug 2016
Accepted: 01 Dec 2016

Published online: 14 Jul 2017 *

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