The causal relationship between government expenditures and economic growth : evidence form Jordan

Abstract EN

This paper seeks to examine if the size of government expenditures (GE) that can be determined to Granger, cause the growth of gross domestic product (GDP), or the growth of (GDP) can be determined to Granger cause (GE).

For this purpose, we use Error Correction Model within a Granger causality framework, this analysis offers a possible causal patterns.

Using data from IMF database of Jordan, the analysis shows that government expenditure (GE) Granger causes (GDP) in Jordan in the short run and in the long run, which generally proves that government expenditure has a positive effect on gross domestic product in Jordan.

Furthermore, it supports the Keynesian school of thought which suggests that government expenditure accelerates economic growth.

Thus, government expenditure is regarded as an exogenous force that changes aggregate output.