The relationship between total production and public spending in Mexico: Keynes versus WagnerInternational Journal of Financial Research (2016)
This paper studies the relationship between public spending and production in Mexico. It aims to assess the direction of causality between these two variables ranging from economic growth to public expenditure (Wagner hypothesis) or public spending to economic growth (Keynesian hypothesis). Annual time series for the period 1925–2014 of production and public spending in real terms (1970 based) and logarithms were used. The test method involved three steps: 1) unit root tests; 2) cointegration test of Engle and Granger and 3) evidence of causality in the Granger sense. The paper uses five different specifications recommended by the specialized international literature. It was found that the series are stationary with regards first differences and are cointegrated, so we can say there is a long-term relationship. Statistical tests of Granger causality indicated that the Wagner hypothesis does not hold, while the Keynes hypothesis is validated. The study concludes that public spending and its proper management is one of the keys to promoting economic growth in Mexico. Originality/value: Time series for a long-term period, based on official information, something not done previously, were developed. This allowed the results to be more reliable than those presented by other authors. In addition, a modern procedure of econometric estimation, allowing the assessment of the two proposed scenarios was used. The work is relevant in terms of the design of economic policy and the pursuit of development in Mexico.
- Wagner hypothesis,
- government expenditure,
- economic growth,
Publication DateWinter January 1, 2016
Citation InformationIsaac Sánchez-Juárez, Rosa María García Almada and Héctor Barajas Bustillos. "The relationship between total production and public spending in Mexico: Keynes versus Wagner" International Journal of Financial Research Vol. 7 Iss. 1 (2016) p. 109 - 120 ISSN: 1923-4031
Available at: http://works.bepress.com/isaac_sanchez_juarez/38/