Volume 2012 (2012), Article ID 573826, 8 pages
Wagner's Law in Sri Lanka: An Econometric Analysis
Department of Economics, University of Colombo, Colombo 00300, Sri Lanka
Received 19 August 2012; Accepted 20 September 2012
Academic Editors: B.-L. Chen, C. Le Van, and M. Tsionas
Copyright © 2012 Mayandy Kesavarajah. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
This study examines whether there is empirical evidence that Wagner's law holds in the Sri Lankan economy using time series annual data over the period from 1960 to 2010 for Sri Lanka, applying cointegration and error correction modeling (ECM) techniques. In particular, this study keeps a special focus to examine the validity of six versions of Wagner's hypothesis, which support the existence of long-run relationship between public expenditure and economic growth. The empirical evidence of this study indicates that while there prevail is a short-run relationship between public expenditure and economic growth, the long-run results showed no strong evidence in support of the validity of the Wagner’s law for Sri Lankan economy. Granger causality analysis also confirms this result. Therefore, the findings of this study pave to broaden this study further for a deeper understanding about the relationship between public expenditure and economic growth by giving more attention on individual items of public expenditure and by including more macroeconomic variables in the econometric model using different methodology in future.