As any nation in the world would desires, many of the sub-Saharan Africa countries among other goals are much focus on improving the pace of their growth, economically. This is especially important, having gone through different sort of economic shock and distress as a result of local disputes and the recent disturbances (such as Covid-19 pandemic and Russian-Ukraine war) in the world. The possibility of effective government expenditure and openness in trade to bring forth economic growth and development has generated discussion and debate among scholars. Hrushikesh [1] opined that government expenditure as a tool of fiscal policy can have a profound influence on the stabilization and economic growth depending upon its utilization pattern and management by the government. However, careless allocation of government spending could lead to wastage, if not detrimental to the wellbeing of the economy and the people. While the government isn’t a major force in the market ecosystem, its fiscal spending is pertinent to mitigate any market shock that might want to inflict pain on the citizens. 

Government expenditure on agriculture, health and education are expected to increase the availability of sound and quality labour in the economy, and in furtherance raise the nation’s national income. Likewise, one of the core areas of government spending is securing life and properties, and ensuring access to constant power supply and electricity. Adequate and efficient spending in these areas is expected to attract more foreign direct investment (FDI). 

Meanwhile, different opinion was established from a numbers of researchers, with the assumption that, as government expenditure increases and becomes bigger; especially when its increment is not related to enhancement of labour or human resources, and aids to trade (transportation, communication, e.t.c), it either becomes insignificant [2-5], or negatively impacts the economic growth of a nation if the source of revenue for the expansion is through tax increment or borrowing [6-7], and Engen and Skinner[8].

Trade openness on the other hand has been found as one of the important factors that contribute to a long term economic growth. Trade openness can either be throu relinquishing tariffs or by renouncing non-tariff barriers. The former is expected to increases citizen access to public goods, while the later will in addition to accessibility to public goods, increases government revenue through tariffs on imports. An increase in government revenue will lead to an expansion of government expenditure, thereby resulting to further economic growth. As such, there is a relationship between government expenditure, trade openness and economic growth [9-10]. Although, studies like Menyah and Wolde-Rufael [11], Hasnul [12], Torki [13] and Olulu et al. [14] establishes the relationship between government expenditure and economic growth while Zeren and Ari [15]; and Tahir and Azid [16] viewed the nexus between trade openness and economy growth at different instances, but Yanikkaya [17] and Menyah et al. were skeptical on the effectiveness of trade openness to bring about an economy growth. With the assumption that developing countries ended up being a dumping ground of low quality goods from the developed nations, there is serious challenges this posed on growth.

Empirical study of Asfaw [18] used a panel data covering 47 sub Saharan Africa countries over the periods of 2000-2008 to empirically confirm the relationship between economic growth and trade policies. The study claims that openness to trade stimulates both economic growth and development. Brueckner and Lederman [19] furthered by using instrumental variables approach to estimate the relationship between trade openness and economic growth in sub Saharan Africa countries, the study concludes that trade openness has a significant positive effect on economic growth while economic growth shows negative and insignificant effect on trade openness. Using pooled mean group estimation technique to analyze a dynamic growth model with data from 42 SSA countries, Zahonogo [20] concluded that a trade threshold exists, below which increasing trade openness is beneficial, and above which the trade effect on growth declines. Fankein and Oumarou showed that when complemented with appropriate and sufficient policies, trade openness promotes economic growth in SSA countries.

Many of these study spin around the relationship between trade openness and economic development and the contributory role of government expenditure to economic growth. Overtime, many of these literatures have poses differing theoretical and empirical conclusions, with the Keynesian and Wagnan’s assumptions forming the basis of the differing school of thoughts. The Keynesian’s school of thought suggests that the government expenditure has been a viable tool for economic development and correction of market failure, especially for developing countries encountering different economy shocks. Contrary to the order of causality in the Keynesian’s hypothesis, the Wagnan’s school of thought concluded that economy development influenced government expenditure and not otherwise. It is at the expense of economy growth that government can expand its fiscal expenditure; the two schools of thought however recognize the importance of government spending for an economy to grow further. Meanwhile, few study have worked on trade and economic growth and government expenditure and growth, we found it worthy to observe the interaction of the two fiscal policy instrument on the economic growth in sub-Sahara. Having the understanding that economic growth is not a one-variable dependent variable, this study analyzes the combine effects of agricultural trade openness and government expenditure on economic growth.

Theoretical Framework

Trade openness, government expenditure, and economic growth are core and related concept in micro and macroeconomics. This study is underpinned on Keynesian’s growth theory. According to the theory, changes in expenditure (individual consumption, government spending, and investment) and net exports reflects on the output level. As expressed in the theory’s multiplier effect, output is expected to change by multiples of either increase or decrease in expenditure or international trade. By introducing government expenditure and trade openness as independent variables (inputs) in the aggregate production economy, we employ the below function.

Y = C+I+G+NX

Where, Y = Aggregate Output, C is Consumption, I = Investment, G = Government expenditure, NX = Net Exports (i.e exports minus imports).

As shown in the above equation, the independent variables (C, I, G, NX) are significant and impactful on the aggregate output. As such any changes in any of the independent variables will tell on the aggregate output. To determine the rate of economic growth in sub Saharan Africa, Okungbowa [21] specified the following models:

Where:

• i = denotes countries or cross sections, t = time period t–j = lag time period 

• GDPPC = Gross Domestic Product Per Capita 

• GFCEPC = Government Final Consumption Expenditure Per Capita 

• OP = Trade openness 

• E = white noise error term 

• GDPPC = GDP/Overall population

• GFCEPC = GFCE/Overall population

Agricultural trade = Total trade (N+X)/ GDP

The study investigates the influence of government expenditure and trade on economic growth of sub-Sahara African countries. This is a multi-country secondary analysis study using cross sectional panel dataset for the period of 1990-2021. Seven different variables were used to establish the relationship in the study. We use GDP per capital growth (annual %) to proxy growth. Government expenditure on education, total (% of GDP), General government final consumption expenditure (% of GDP), Population growth (annual %), Inflation, consumer prices (annual %), Labor force (total). Agricultural trade was obtained from dividing the sum of both net export and import by growth. The data was sourced from the World Bank Development Indicators database and Penn World Table 10.0. To avoid spurious regression result and inappropriate policy implication (s), the study tested stationarity of the data using Augmented Dickey-Fuller (ADF) unit root test.

From Table 1, it is revealed that the number of observation was 1452. The variables examined were value of GDP per capital growth (annual %) to proxy growth, government expenditure on education, total (% of GDP); general government final consumption expenditure (% of GDP), population growth (annual %), inflation, consumer prices (annual %), labor force (total) and agricultural trade. The average inflation was about 46, the mean government expenditure on education was about 4% of the total GDP and 15% of the total GDP was expended on consumption. Population growth has an average growth rate of 2.46% and the economic growth rate was slightly about 1.3%.

Table 1: Summary Statistics

Source: Author computation, 2022

Testing the order of integration was the first procedure in time series estimation. To achieve this, different approaches have been developed and used by a number of researchers in the field. Prominent among the methodologies used were the Augmented Dicky-Fuller (ADF) and Phillip-Perron (PP) unit root tests for time series data while the likes of Im-Pesaran-Shin (IPS) unit-root test Breitung and Levin-Lin-Chiu test were used in panel data. Like the renowned Dicky-Fuller (DF) unit root test, IPS test entail testing for the existence of unit roots in panel data (IPS, 2003). The test of IPS unit-root relies on accepting alternative hypothesis of stationarity of the panels as against the null hypothesis of unit (non-stationary) root of the panels. The IPS test for unit roots was performed. The result as presented on Table 2 showed the t-statistics for all series from IPS test except government expenditure on consumption and population growth were statistically insignificant; this result failed to accept the null hypothesis of non-stationary at 0.05 level of significance for all the variables.

Table 2: Im-Pesaran-Shin Unit Root Test

Source: Author computation, 2022

This indicates that all the series except government expenditure on consumption and population growth were non-stationary at their level form. At first differencing, the variables were stationary with order of integration 1. The result implied that all the series were generated by similar stochastic processes and also exhibits the possibility of moving together in the long run. Since the variable failed stationarity test at level, it is therefore imperative to establish the relationship between the variables [22].

Pairwise correlation was used to test the collinearity of the explanatory variables. The result as shown on Table 3 revealed the coefficient of the estimates to be less than unity; implying that there is no perfect collinearity amongst the explanatory variables used in the model, however, the condition satisfies the establishment of the relationship between the explained and the explanatory variables. multicollinearity test was performed, the variance inflation factor (VIF) mean value was 1.36; the result indicated that there is no multicollinearity since mean vif was less than 10. Also,

Breusch–Pagan/Cook–Weisberg test for heteroskedasticity was carried out to confirm if the model maintained constant variance of the error term, however, the result was below the significance level of 5%, thereby indicated absence of heteroskedasticity.

Table 3: Pairwise Correlations of the Explanatory Variables Indicated

Source: Author computation, 2022

One of the issues of major concern in this type of work is the choice of the most appropriate model. Ordinary Least Square regression was first performed after which the explanatory variables were also regress against the residual to ascertain the model performance. Additionally, we perform the Hausman test to determine the most efficient model between the fixed effect or random effect model, the null hypothesis was not rejected as the p-value was less than 5%, hence, the fixed effect model was used. Table 4 presents the results of the models; the first model showed the relationship between agricultural trade and economic growth; the relationship was insignificant on the model but both agricultural trade and government expenditure on education were statistically significant at 5% level of confidence on the third model. This implied that the variables influence economic growth in the region of study. Building human capital, no doubt has impact on economic growth, Omojimite found that total expenditure on education granger-cause financial growth, and while Matthew showed that expenditure on secondary school education and economic growth are positively related.

Table 4: Regression Results from Govt Expenditure and Agric. Trade to Economic Growth

Source: Author computation, 2022 t statistics in parentheses * p<0.05, ** p<0.01, *** p<0.001

Agricultural trade is known to be the main engine of rural economic growth in developing nations [23]. On model 6, we found that agricultural trade and government expenditure on education positively influence economic growth. Unlike, the result of the government expenditure on education displayed on model 3, this result indicated agricultural trade and government expenditure on education to increase economic growth in sub-Sahara Africa. African countries need to take advantage of agriculture to feed the continent through permission of free trade, expansion of market within and outside the continent. Also, in terms of creation of sustainable job, foreign exchange earnings, adaptation of new and innovative technologies, production practices and in aid promotion of both local and global food and nutritional security [23-24].

On the contrary, government consumption spending and population growth showed negative impact on economic growth. Higher government consumption spending will advance the chance of borrowing. Although, borrowing to some extent could be beneficial to economic growth only if the borrowed money were largely expended on infrastructure and developmental projects. But borrowing for consumption could be detrimental and damaging to the country [25]. The implication of the negative coefficient of government consumption expenditure might be that the government spending exceeds the revenue generated which may result in more borrowing, thereby increasing the country debt stock.

This study primarily tests the impact of two fiscal policy instruments on economic growth of sub-Sahara Africa. We keenly observe how these instrument influences economic growth in this region. To establish this, cross sectional panel dataset for the period of 1990 – 2021 for 48 countries was used for the study. We employ Im-Pesaran-Shin unit-root to establish the stationarity of the variables considered. Also, we tested correlation between the explanatory variables; multicollinearity, and heteroscedascity problem. Hausman test was also computed to ascertain the best and appropriate model to use in this case. 

Our result showed that agricultural trade and government consumption expenditure significantly influence economic growth. Though, government consumption expenditure and population growth negatively impact economic growth, but agricultural trade and government expenditure on education positively influence economic growth. The result suggests some important implication for policymakers in these countries. First, government expenditure can have positive effect on economic growth if we priorities on spending on building infrastructures as key strategy for economic growth. At the same time, revenue base of the countries can be boost through increasing agricultural export and expansion of free trade agreements within the region.

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