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International Journal of Applied Economic Studies (ISSN:2345-5721)

Government expenditure and Economic Growth in MENA Region

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Abstract This paper investigates the causal relationship between government expenditure and GDP for MENA region countries by using panel unit root tests and panel cointegration analysis for the period 1970-2010. The results show a strong causality from economic growth to government expenditure in these countries. However, government spending does not have any significant effects on GDP. It means that it is the GDP that drives government expenditure in mentioned countries, not vice versa. Moreover, income elasticity of government expenditure is estimates 2.7 much more than unity. So, Wagner’s law seems to being confirmed for countries under examination. It is suggested that the distinct characteristic of the mentioned countries is likely due to their inefficient governments and poor institutions JEL classification: O40, O15, I20, C33, C10 Keywords: Panel Unit Root, Panel Cointegration, Granger Causality, Government Expenditure, MENA region countries