The Relationship between Economic Growth and Government Expenditure: Evidence from Sudan

In the economic literature, there are two opposing views on the relationship between economic growth and the size of the government. The Wagner hypothesis states that as the economy grows so does the size of the public sector. This is in contrast to the Keynesian view that the growth of government expenditure results in the growth of GDP. The Wagner hypothesis was tested for different countries and the results were conflicting. The primary objective of this paper is test the Wagner hypothesis in the context of the Sudan for the period 1970-2010. The methodology used is cointegration, causality, and error correction model (ECM). The results for the Sudan indicate that the data for the period considered supports the Wagner’s hypothesis.