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Total Production and Public Spending in Nigeria: a Re-examination of Keynesian and Wagner’s Views

E. Chuke Nwude, Hillary Chijindu Ezeaku


The debate on public spending and total output relation is ongoing. Though most studies have provided evidence confirming the Keynesian assumption of a long-run association between government spending and total output, there appear to be no consensus on the predictive powers embedded in the two variables. In other words, disagreements lie mostly on the direction of causality between public expenditure and total production with existing empirical findings divided between the Keynesian hypothesis which affirms that public spending is causal for total production (i.e. causality running from public spending to total production), and the Wagner’s assumption which states that causality rather runs from total production to public spending. The aim of this paper is therefore to establish which of the two views hold for Nigeria. The study used annualized data from World Bank’s World Development Indicators, and the Central Bank of Nigeria, from 1981 to 2014. The results revealed that a long-run relationship exist between public spending and total output as proxied by real gross domestic product (GDP) and real GDP per capita. The findings based on VAR Granger causality test provides evidence supporting the Keynesian views that causality runs from public spending to total production in Nigeria. This entails that past information on public expenditure is vital in forecasting total production. Wagner’s hypothesis was rejected, and does not hold for Nigeria. Keynesian Law is therefore the proven recourse, and for economic activity to be stimulated it is necessary for the government to spend to ensure sustained increase in production level.

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