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International Research Journal of Modernization in Engineering Technology and Science
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[2307]
DOES WAGNER’S LAW HOLD GOOD FOR MALAYSIA?
A TIME SERIES ANALYSIS
Dr. P. Ranjithkumar*1, N. Hariharan*2
*1Assistant Professor in Economics, Department of commerce, Parvathy’s Arts and Science College, Wisdom city,
Dindigul-624 001, Tamil Nadu, India.
*2B,com CS, Second year, Parvathy’s Arts and Science College, Wisdom city, Dindigul-624 001, Tamil Nadu, India.
ABSTRACT
The present work is an attempt to analysis the Wagner law of public expenditure, which emphasizes the public
expenditure, is the key determinant for economic growth. This paper has been analyzed short run and long run
effects of government expenditure on economic growth. An attempt also made in this study to examine
Wagner’s law. For this purpose, this study has been used secondary data and those data obtained from key
indicators Asia and the pacific and international statistical year book during the year from 1981to 2007. It is
clearly evidence that the public expenditure has been strongly influenced the economic growth and Wagner’s
law of public expenditure hold good for Malaysian Economy.
Keywords: Wagner’s law, Public Expenditure, Economic Growth, GDP and government expenditure.
I. INTRODUCTION
Public expenditure maintains higher rate of economic growth in a developing countries, through economic
stabilization, stimulation of investment activity and so on. Public expenditure has played an active role in
reducing regional disparities in underdeveloped countries. Developing countries are require improving social
overheads, creating infrastructure, economic growth and improve the transport and communication facilities,
education and training, growth of capital goods industries, basic industries and research and development.
II. REVIEW OF LITERATURE
Ansari, Gordan and Akuamoah (1997) the government expenditure has deviated substantially and persistently
from national income. Out of three African countries, only Ghana has shown evidence of government
expenditure being caused by national income. It is based on general decline in the economy and public
expenditure. There is no evidence that Wagner’s hypothesis is maintained for a growing economy. The
Keynesian proposition is also not supported by the data for these three African countries.
Tang Tuck Cheong (2001) according to this results Wagner’s thesis is not applicable for Malaysia. There is no
evidence to Keynesian proposition that government expenditure as a policy instrument can be used to
encourage growth in Malaysian economy.
Eu-Chye tan (2002) the results of the study dismiss relevance of Wagner’s law and they favor Keynesian
doctrine in the relation to the Malaysian expenditure behaviors.
Chiung-Ju-Huang (2006) there is no evidence that long run relationship between government size and the
economy either china or Taiwan and Wagner’s law does not hold for china and Taiwan.
III. METHODOLOGY
This paper utilized secondary sources of information. The data obtained from key indicators of Asia and pacific
and international statistical year book. The study period covers from 1981 to 2007. The study period has
divided into 2 decades and one sub period. For uniformity in analysis, the data on public expenditure the simple
linear and semi-log linear regression has employed
Analysis
This chapter analyses about the relationship between government expenditure and population and also analyse
the relationship between government expenditure and GDP.

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[2308]
Table1.1: The regression analysis between total expenditure and population during 1981-2007
*Significant at 1 per cent level
** significant at 5 per cent level
The results explained from analysis, the relationship between total public expenditure and population reveal
that the public expenditure declines annually by 4.41 Ringgits, if population increased by one person during
1981-1990. The regression coefficient of simple linear model is insignificant. Public expenditure has not
increased on par with the growth of population.
The public expenditure increased annually by 151.5 Ringgits, if population increased by one person during
1991-2000. The public expenditure increased consistently with increase in population.
Public expenditure increased annually by 563.6 Ringgits, if the population increased by one person during
2001-2007. The government expenditure increased consistently with population.
Table 1.2: The regression analysis between total expenditure and GDP during 1981-2007
*Significant at 1 per cent level
** significant at 5 per cent level
The GDP is grown annually by 4.36 millions of ringgits when public expenditure increased by one million of
ringgits during 1981-1990. The GDP increases annually by 4.87 millions of ringgits when the public
expenditure increases by one million of ringgits during 1991-2000. The GDP increased annually 3.64 millions of
ringgits when public expenditure increased by one million of ringgits during 2001-2007.
IV. CONCLUSION
Increasing in the participation of government in nation building activities like education, public health, increase
in defense, parliament, expansion of civil administration, working democratic institutions like parliament,
increase the international commitments, rise in the prices throughout the period and consequent rise in
salaries and allowances of government employees. Growth of population and growth of urban areas are
responsible for tremendous increase of government expenditure in Malaysia.
Wagner’s thesis holds that with the increasing population, percapita income, and output and welfare functions
of the government the public expenditure is growing. Results of the present study are demonstrated that
Wagner’s law hold good for Malaysian economy. Therefore, Wagner’s law of public expenditure hold good for
Malaysian economy also.
Variable Model Time period a b SEb R R2
Total public expenditure
and population
Simple
linear
1981-1990 1687.90 -4.47 30.53 0.003 -0.12
and population
Simple
linear
1991-2000 1786.37 151.53 16.88 0.91 0.90
and population
Simple
linear
2001-2007 2957.43 563.60 188.60 0.64 0.57
Variable Model Time period a b SEb R R2
and population
Simple linear 1981-1990 -3919 -4.36 1.11 0.66 0.62
and population
Simple linear 1991-2000 -3460 4.86 0.34 0.96 0.96
and population
Simple linear 2001-2007 1836 3.63 0.92 0.92 0.91

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V. REFERENCE
[1] Asseary M.I , D.V Gordan and C Akumanth ” Keynes versus Wanger public expenditure and National
income for three African counries” Applied Economics 1997 Vol.29 PP 543-550.
[2] Asseery A.A and D law and Perdikis “Klageno’s law public expenditure in Iraq: A test using
disagreegated data”, Applied economic leters 1999, vol 6, p.p 39-44
[3] Bahala biswal Dhawn and Hooi-yean-lee “Testing wagner’s law returns keyns using disagreegated
public expenditure data for Canada” Applied economics 1999, No 31 pp 1238-1068.
[4] Bharat R. Kolluri, Michel J. Paink and Mohamud G. Wahab “Government Expenditure and economic
evidence from GT countries” Applied economics No 32, 2000 P.P 1059-1068
[5] Chinug- Ju-Hung” Government expenditure in china and Taiwan: Do they follow wanger’s law?” Journal
of economic development, vol 31, Number 2 December 2006, P.P 139-148.
[6] Chor foon tang “Wagner’s law versus Keynesian hypothesis: New evidence from recursive regression
based causality Apporaches” ICFAI University of Journal public and Research Journal vol 15 No 10
October 2006.
[7] E u-Cye Tan “Keynesian does wanger’s law or the Keynesian paradigm hold the case of Malaysia?”
thammast review, PP 62-65.
[8] Fedra Halicioglu “Testing wangres law of Trukey. 1960-2000”, Review of middle east economic and
finance vol. No 2 PP 129-140.
[9] Hefeez ur Rehaman Intiaz and ahmed and Masood sarwar Awan “Testing Wagner’s law of Pakistan
1972-2004” Pakistan economic and social review vol. No 2, 2007, PP 155-166.
[10] Judhinana and Ghani Mazafar shah, mazhamal and W.N.W. Azman Saini, “Is wanger or keyns rights?
Testing government expenditure and ecosia "economic growth nexus in Malaysia” ICFAI Journal of
Public Finance November 2005.
[11] Michel chelostsos and christos kollias “Testing Wagner’s law using disaggregated public expenditure
data in the case of Greece, Applied economics”
[12] Muthil sundharam, Mahendran Nayar santha Vathilinngam “Keynes and Wanger on government
expenditure and economic development: The cause of developing economy”, Emparical Economics,
Feburary 2008.
[13] Parash kumar narayanan, Ingard Nieslan and Russel Symth, “Panel Data, Co-integration, Causality and
Wanger’s law: the emprical evidence from chinece provinces”. Moansh university business and
economics, Discussion paper 01/06.
[14] Tang tuck cheong “The testing relationship between government expenditure and national income in
Malaysia” Renamed International Journal of Management Studies Analysis Vol3, No 1 and 2, 2001,
pp37-51.

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