Quarterly Journal of Quantitative Economics (JQE)

Relationship between Economic Growth and Government Size in Selected OPEC Countries: A Multivariate Analysis Using Panel Data Techniques

https://doi.org/10.22055/jqe.2011.10601
Volume 8, Issue 2 - Serial Number 2
Summer 2011
Pages 79-94
Quarterly Journal of Quantitative Economics (JQE)

Document Type : Research Paper

Authors

Mohammad Ali Falahi
Mahdi Khodaparast Mashhadi
Mostafa Salimifar
Amin Haghnejad
Abstract
This paper investigates the interaction effects and the causal relationship between government consumption expenditures on goods and services and non-oil gross domestic product  for a panel of 9 selected OPEC countries over the period of 1970-2006. In the multivariate framework, three control variables; inflation, openness and oil revenues are used as control variables to avoid the problem of omitted variables bias. Using econometric techniques including panel cointegration, and panel generalized method of moment; three sets of results have been obtained: first, there is a strong evidence of positive bidirectional causality between non-oil economic growth and government size in the short-run; there is a positive unidirectional causality running from non-oil economic growth to government size in the long-run; the results of the strong causality confirm those of the short-run causality. Based on these findings, both Wagner’s law and Keynes view are supported. Second, inflation and oil revenues have negative and significant impacts non-oil economic growth; the impact of openness on non-oil economic growth is statistically insignificant. Third, inflation and openness have negative and significant impacts on government size, while a positive and significant impact is found for oil revenues.
 
JEL classification: C33, H11, O40

Keywords

Government Size
Economic Growth
cointegration
Panel data
Granger causality
  • Receive Date 15 June 2014
  • First Publish Date 15 June 2014
  • Publish Date 22 June 2011

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