The casual relationship between growth and disaggregate public expenditure in Eswatini

Abstract

Public expenditure in the Kingdom of Eswatini appears to be increasing annually; however, it does not seem to be growing at the same rate as economic growth, which is concerning for a middle-income developing economy. Thus, the main objective of the study is to investigate the relation-ship between disaggregated public expenditure (which includes capital government expenditures and recurrent government expenditures) and economic growth. To the best of our knowledge, this study is the first to investigate the relationship between disaggregated government expenditures and economic growth in the Kingdom of Eswatini. The study examines this relationship empiri-cally using the Autoregressive Distributed Lag (ARDL) model on annual data for the period from 1980 to 2023, which tests the long-run and short-run relationships between these variables. Additionally, the study employs controls for variables such as the inflation rate, capital investment, human capital, population growth rate and a dummy variable to capture the COVID-19 pandemic. The Error Correction Model (ECM) is further employed to examine the long-run and the short-run relationships. The results of the study indicate that there is indeed a statistically significant positive relationship between recurrent government expenditures and economic growth in the long-run, while capital government expenditures and economic growth have a negative but statistically sig-nificant relationship in the short-run. After conducting the Granger Causality Tests, the study fur-ther observes that the economy of Eswatini follows Wagner’s law in that economic growth causes recurrent government expenditure and capital expenditures and the reverse is not true. The study therefore recommends that the government of Eswatini spends more on recurrent expenditures than it does on capital expenditures.