The Role of Government Expenditure Types on Gross Domestic Product in Libya using Pairwise Causality Methodology

Abstract

The government plays a pivotal role in maintaining economic stability through expenditure in all its subsidiary activities. The objective of that is to rapid growth of its economy by using its production elements in its sectors for maximization GDP. In addition, it establishes a trade climate leading to the effectiveness of the production elements allocation to produce high quality goods and reflect this on GDP growth and economic prosperity. The study dealt with the role of government expenditure in its various types in GDP during 2000 to 2023. It had based on time series data to find a bilateral causal relationship between developments, current, and extra expenditure and GDP. The study analytical findings revealed that the variables are stationary in the first difference in the Augmented Dickey-Fuller and Phillips–Perron tests. The Johansen cointegration Test also indicated to did not exit cointegration relationships among variables under the study investigation. Pairwise causality Test has explained that there is a unidirectional causality moving from development expenditure towards GDP and a unidirectional causal relation moving from GDP to extra expenditure. The causality results showed also that did not exit causal relationship from other types of expenditure towards GDP. The study recommends intensifying expenditure in development expenditure more than other expenditure types, especially regarding expenditure on agriculture and industry expenditure. This expenditure lead to increasing its productive capacity then stimulates GDP and not relying on oil income as a sole source of income.