Government Expenditure: A Driving Force in the Thai Economy?

Abstract

The study aimed to understand whether or not the government spending stimulated Thailand’s economic growth. According to an economic theoretical concept, the overall government expenditure (G) is correlated with Gross Domestic Product (GDP), this study tested the relationship using Granger Causality Test, Cointegration  and  the Error Correction Model (ECM),  using quarterly data of  G and GDP at 1988 prices during Q1 of 2001 to Q4 of 2013. The study indicated that GDP and G significantly had short run and long run relationships.  Using a Granger Causality Test, it found that a change in GDP would cause a significant change in G at a 0.05 percent level, which is consistent with Wagner's assumption rather than Keynes’ theory.  Therefore, this study suggested the Thai government should set a level of government spending based on GDP instead of using the government expenditure to stimulate the economy during 2001 to 2013. However, this study also found that the overall government spending could stimulate the Thai economy both in the short and the long term.