The relationship between government expenditure and economic growth is complex and debated. Keynesian economics suggests that government spending stimulates aggregate demand, but excessive spending can be detrimental. Several factors moderate this relationship, including corruption and conflict. Many African countries, including those in the Economic Community of West African States (ECOWAS), experience high levels of corruption and conflict, hindering the effectiveness of government resources. Corruption distorts resource allocation, reduces investment, and undermines public services, while conflict diverts resources away from productive sectors. Despite increased government spending in ECOWAS, economic growth has not met expectations. This study examines how corruption and conflict moderate the relationship between government expenditure and economic growth in ECOWAS countries from 1999 to 2021, aiming to provide valuable insights for policymakers.

The literature on government expenditure and economic growth is extensive but inconclusive. Some studies support a positive relationship, while others highlight the potential negative consequences of excessive or mismanaged spending. The role of corruption is also debated; some argue it hinders growth by impeding investment and reducing the effectiveness of public services, while others suggest it may have complex and context-dependent effects. Similarly, the impact of conflict is well-established, with studies showing it diverts resources and disrupts economic activity. The existing literature lacks a consensus on the combined effect of corruption and conflict on the relationship between government expenditure and economic growth in ECOWAS, motivating this study.

This study employed panel cointegration techniques to analyze the relationship between government expenditure and real GDP in 15 ECOWAS countries from 1999 to 2021. The study used data on government expenditure (% of GDP), foreign exchange rates, corruption (control of corruption index from the World Governance Indicator), and conflict (Major Episodes of Political Violence data). Three panel cointegration techniques—Panel Ordinary Least Squares (POLS), Fully Modified Ordinary Least Squares (FMOLS), and Dynamic Ordinary Least Squares (DOLS)—were employed to estimate four models: a baseline model and three models incorporating interaction terms for corruption and government expenditure, conflict and government expenditure, and corruption and conflict. The unit root test was conducted to examine the stationarity of the variables, followed by a cointegration test to determine the presence of a long-term relationship between the variables. The long-run relationships were estimated using FMOLS and DOLS techniques to address issues of serial correlation and endogeneity.

The results consistently showed a positive and statistically significant relationship between total government expenditure and real GDP growth across all models and estimation techniques. In the baseline DOLS model, a 1% increase in government expenditure was associated with a 51.3% increase in real GDP. The positive effect of government expenditure on economic growth was robust across the different models. However, the interaction terms revealed the moderating roles of corruption and conflict. The inclusion of corruption significantly improved the positive relationship between government expenditure and growth, indicating that better governance leads to more effective use of public funds. Conversely, conflict significantly weakened the positive relationship, suggesting that conflict diverts resources and disrupts economic activity, reducing the effectiveness of government spending. The results indicated that effective governance and the control of corruption enhance the positive impact of government expenditure on economic growth, while conflict hinders it.

The findings highlight the importance of good governance and conflict resolution for maximizing the benefits of government expenditure on economic growth in ECOWAS. The positive relationship between government expenditure and growth underscores the potential of well-managed public spending to drive economic development. However, the moderating roles of corruption and conflict emphasize the need for policies aimed at improving governance, reducing corruption, and promoting peace and security. These findings are relevant to policymakers in ECOWAS who seek to design effective strategies for economic growth and development.

This study demonstrates the positive effect of government expenditure on economic growth in ECOWAS, but this effect depends heavily on the levels of corruption and conflict. Effective governance and peace are critical to leveraging public spending for economic development. Future research could explore the specific channels through which corruption and conflict affect the impact of government expenditure on growth, and it could investigate the effectiveness of different policy interventions aimed at mitigating these negative effects.

The study's limitations include the use of secondary data, the potential for omitted variable bias, and the cross-sectional nature of the data. The study used aggregate data, which may obscure variations at the subnational level. Future research may benefit from exploring these limitations and disaggregating the data for more detailed analysis.