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Article

William R. DiPeitro and Emmanuel Anoruo

The purpose of this paper is to examine the impact of the size of government and public debt on real economic growth, for a panel of 175 countries around the world.

Abstract

Purpose

The purpose of this paper is to examine the impact of the size of government and public debt on real economic growth, for a panel of 175 countries around the world.

Design/methodology/approach

The paper utilizes the fixed‐effects and random‐effects techniques to estimate the panel regressions.

Findings

The results indicate that both the size of government and the extent of government indebtedness have negative effects on economic growth.

Practical implications

The findings suggest that the authorities ought to take the necessary steps to curtail excessive government spending and public debts, in order to promote economic growth.

Originality/value

The contribution of the paper is its application of the fixed‐ and random‐effects techniques in modeling the relation of real economic growth to the size of government and public debt, for a panel of 175 countries around the world.

Details

Journal of Economic Studies, vol. 39 no. 4
Type: Research Article
ISSN: 0144-3585

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Book part

Milad Zarin-Nejadan

The relative size of the State in industrialized economies has increased dramatically during the past century giving rise to legitimate fears that such a trend might end…

Abstract

The relative size of the State in industrialized economies has increased dramatically during the past century giving rise to legitimate fears that such a trend might end up having an adverse impact on growth. This chapter explores the relationship between the development of government activities and economic growth. It starts by evoking problems related to the measurement of the public sector before reviewing statistical evidence on the long-term growth of the share of the State in the economy. It then provides a number of explanations for this phenomenon including those pertaining to the functioning of the political system itself thereby pointing toward inefficiencies. The next step is to explore the principal avenues along which government interventions can positively or negatively interfere with the growth potential of the economy. It turns out that while public expenditures – especially those responding to market failures – tend to be favorable to growth, most taxes are growth-hindering. The final part of the chapter singles out some pitfalls in the empirical investigation of this relationship. The conjecture is that the nonlinear and possibly endogenous nature of the hypothesized nexus can explain the lack of consensus in empirical studies conducted so far.

Details

Economic Growth and Development
Type: Book
ISBN: 978-1-78052-397-2

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Article

Gitana Dudzevičiūtė, Agnė Šimelytė and Aušra Liučvaitienė

The purpose of this paper is to provide more reliable estimates of the relationship between government spending and economic growth in the European Union (EU) during the…

Abstract

Purpose

The purpose of this paper is to provide more reliable estimates of the relationship between government spending and economic growth in the European Union (EU) during the period of 1995-2015.

Design/methodology/approach

The methodology consisted of several different stages. In the first stage for an assessment of dynamics of government spending and economic growth indicators over two decades, descriptive statistics analysis was employed. Correlation analysis helped to identify the relationships between government expenditures (GEs) and economic growth. In the third stage, for modeling the relationship and the estimation of causality between GE and economic growth, Granger causality testing was applied.

Findings

The research indicated that eight EU countries have a significant relationship between government spending and economic growth.

Research limitations/implications

This study has been bounded by general GE and economic growth only. The breakdowns of general GE on the basis of the activities they support have not been considered in this paper, which is the main limitation of the research. Despite the limitation, it might be maintained that the research highlights key relationships in the EU countries.

Originality/value

These insights might be useful for policy makers. In countries with unidirectional causality running from GE to economic growth, the government can employ expenditure as a factor for growth. The governments should ensure that resources are properly managed and efficiently allocated to accelerate economic growth in the countries with unidirectional causality from GDP to GE.

Details

International Journal of Social Economics, vol. 45 no. 2
Type: Research Article
ISSN: 0306-8293

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Article

Olumide Olaoye and Olatunji Afolabi

This paper investigates whether institutional environment influences the relationship government spending and economic growth in ECOWAS over the period 2008–2017.

Abstract

Purpose

This paper investigates whether institutional environment influences the relationship government spending and economic growth in ECOWAS over the period 2008–2017.

Design/methodology/approach

The study adopts the recently developed panel vector autoregressive (PVAR) by Abrigo and Love (2015) and a two-step system generalised method of moment (GMM).

Findings

The results from the study show no evidence of either unidirectional or bidirectional causal relationship between government spending and economic growth in ECOWAS. Our findings reveal that government spending when associated with high level of corruption, oversized government and a waste of public resources will not cause economic growth.

Originality/value

Unlike previous studies, we resolve the inherent problems of endogeneity and persistence in economic data. Likewise, we depart from existing studies that examined the causal relationship in a bivariate framework and adopt a trivariate causality testing.

Details

African Journal of Economic and Management Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2040-0705

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Article

Noor Zahirah Mohd Sidek and Mehmet Asutay

Most empirical studies on the government expenditure-economic growth nexus suggest a negative relationship between the size of the government expenditures and economic…

Abstract

Purpose

Most empirical studies on the government expenditure-economic growth nexus suggest a negative relationship between the size of the government expenditures and economic growth especially government consumption expenditures. Given these findings, the government should focus on development expenditures and reduce non-development expenditures for higher economic growth. However, the authors argue that this may not be the case, as government consumption expenditures along with better institutional quality promote growth via reduced corruption, reduction of political risks and good governance. The purpose of this study is to provide empirical evidences that both government consumption and development expenditure promote growth in the presence of better institutional quality.

Design/methodology/approach

This paper re-examines the impact of government expenditures on growth whilst controlling institutional factors for a sample of 30 developed and 91 developing countries from 1984 to 2017. Government expenditure is segregated into consumption and development expenditures.

Findings

The results are consistent with existing findings where government consumption expenditures have a negative effect on growth and government development expenditures contribute positively towards growth. However, when the authors conditioned government consumption expenditures with institutional variables, results suggest that in the presence of good institutions, both government consumption and development expenditures promote growth.

Practical implications

The findings in this paper suggest that in the presence of good institutions, government consumption expenditures will contribute positively towards growth. The results are relatively consistent for both developing and developed economies, which suggests the importance of institutional factors leading to a parallel movement towards long run growth path. In other words, long run economic growth is driven by a similar institutional environment.

Originality/value

Both developed and developing countries show similar reactions towards consumption and development expenditures. This indicates that despite the level of development, government expenditures do contribute positively towards growth especially in the presence of better-quality institutions.

Details

Studies in Economics and Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1086-7376

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Article

Olumide Olusegun Olaoye, Monica Orisadare, Ukafor Ukafor Okorie and Ezekiel Abanikanda

The purpose of this study is to investigate the effect of government expenditure on economic growth in 15 Economic Community of West African States (ECOWAS) countries over…

Abstract

Purpose

The purpose of this study is to investigate the effect of government expenditure on economic growth in 15 Economic Community of West African States (ECOWAS) countries over the period of 2005–2017. More precisely, this paper investigates whether institutional environment influences the effect of government spending on economic growth.

Design/methodology/approach

This study adopts the generalized method of moments-system method of estimation to address the problem of dynamic endogeneity inherent in the relationship. Similarly, unlike previous studies which assume that the disturbances of a panel model are cross-sectionally independent, we account for cross-section dependency and cross-country heterogeneity inherent in empirical modeling using Driscoll and Kraay's nonparametric covariance matrix estimator, adjusted for use with both balanced and unbalanced panels along with Monte Carlo simulations.

Findings

The authors find that though, government spending has a positive impact on economic growth but the level of institutional quality adversely affect that positive impact. This suggests that the institutional environment in ECOWAS countries is a drag and not a push factor for government fiscal operations and/policies. Thus, the results provide empirical evidence that there is a conditional relationship between government spending and economic growth in African countries. That is, the effect of government spending on economic growth is dependent on the quality of institutions. Lastly, these findings suggest that in order for government spending to contribute to economic growth, African countries must develop a strong institutional environment.

Originality/value

Unlike previous time series studies for African countries which concentrated on the two variable case, we include institutional quality as a third variable to underline the potential importance of institutional quality for economic growth in ECOWAS countries.

Details

Journal of Economic and Administrative Sciences, vol. 36 no. 4
Type: Research Article
ISSN: 1026-4116

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Article

Temitope Lydia A. Leshoro

The commonly adopted view of the relationship between government spending and economic growth follows the Keynesian approach, in which government spending is considered to…

Abstract

Purpose

The commonly adopted view of the relationship between government spending and economic growth follows the Keynesian approach, in which government spending is considered to determine economic growth. However, there is another theory, which suggests that economic growth in fact determines government spending. This is Wagner’s hypothesis. The purpose of this paper is to investigate which of the two approaches applies to South Africa, and further observes the level of non-linearity between the two variables.

Design/methodology/approach

This study was carried out using quarterly time series data from 1980Q1 to 2015Q1. Granger causality technique was used to observe the direction of causality between the two variables, while regression error specification test (RESET) was employed to determine whether the variables exhibit linear or non-linear behaviour. This was followed by observing the threshold band, using two techniques, namely, sample splitting threshold regression and quadratic generalised method of moments.

Findings

The causality result shows that South Africa follows Wagner’s law, whereby government spending is determined by economic growth, supporting Odhiambo (2015). The RESET result shows that the variables depict a non-linear relationship, thus the government spending economic growth model is non-linear. It was found that if positive economic development is to be achieved, economic growth should preferably be kept within the −1.69 and 3.0 per cent band, and specifically above 1 per cent band.

Originality/value

The unique contribution of this study is that no previous study has attempted the non-linear government spending-economic growth nexus whether within the Keynesian or Wagner law for South Africa.

Details

African Journal of Economic and Management Studies, vol. 8 no. 4
Type: Research Article
ISSN: 2040-0705

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Article

Kafayat Amusa and Mutiu Abimbola Oyinlola

The purpose of this paper is to examine the relationship between government expenditure and economic growth in Botswana over the period 1985‒2016. The study employed the…

Abstract

Purpose

The purpose of this paper is to examine the relationship between government expenditure and economic growth in Botswana over the period 1985‒2016. The study employed the auto-regressive distributed lag (ARDL) bounds testing approach in investigating the nexus. The study makes the argument that the effectiveness of public spending should be assessed not only against the amount of the expenditure but also by the type of the expenditure. The empirical findings showed that aggregate expenditure has a negative short-run and positive long-run effect on economic growth. When expenditure is disaggregated, both forms of expenditures have a positive short-run effect on economic growth, whereas only a long-run positive impact of recurrent expenditure is observed. The study suggests the need to prioritize scarce resources in productive recurrent and development spending that enables increased productivity.

Design/methodology/approach

This study examined the effectiveness of government spending in Botswana, within an ARDL framework from 1985 to 2016. To achieve this, the analysis is carried out on both an aggregate and disaggregated level. Government spending is divided into recurrent and development expenditures.

Findings

This study examined the effectiveness of government spending in Botswana, within an ARDL framework from 1985 to 2016. To achieve this, the analysis hinged on both the aggregate and disaggregated levels. The results of the aggregate analysis suggest that total public expenditure has a negative impact on economic growth in the short run; however, its impact becomes positive over the long run. On disaggregating government spending, the results show that both recurrent and development expenditures have a significant positive short-run impact on growth; however, in the long run, the significant positive impact is only observed for recurrent expenditure.

Practical implications

The results provide evidence of the diverse effects of government expenditure in the country. In the period under investigation, 73 percent of total government expenditure in Botswana was recurrent in nature, whereas 23 percent was related to development. From the results, it can be observed that although the recurrent expenditure has contributed to increased growth and must be encouraged, it is also pertinent for the Botswana Government to endeavor to place more emphasis on productive development expenditure in order to enhance short- and long-term growth. Further, there is a need to strengthen the growth-enhancing structures and to prioritize the scarce economic resources toward productive spending and ensuring continued proper governance over such expenditures.

Originality/value

The study provides empirical evidence on the effectiveness of government spending in a small open, resource-reliant middle-income SSA economy and argues that the effectiveness of public spending must be assessed not only against the amount of the expenditure but also on the type or composition of the expenditure. The study contributes to the scant empirical literature on Botswana by employing the ARDL approach to cointegration technique in estimating the long- and short-run impact of government expenditure on economic growth between 1985 and 2016.

Details

African Journal of Economic and Management Studies, vol. 10 no. 3
Type: Research Article
ISSN: 2040-0705

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Article

Vera Ogeh Soli, Simon Kwadzogah Harvey and Edmond Hagan

This paper aims to examine the relationships between disaggregated government fiscal policy variables; private capital investment and economic growth in Ghana, as well as…

Abstract

Purpose

This paper aims to examine the relationships between disaggregated government fiscal policy variables; private capital investment and economic growth in Ghana, as well as the similarities and differences in the impact of these variables on private investment (PI) and economic growth.

Design/methodology/approach

Cointegration and an error‐correction models are used, with time series properties of the variables investigate using augmented Dickey‐Fuller test and cointegration of the variables tested using Engel‐Granger two step procedure.

Findings

The findings indicate that changes in government recurrent expenditure, current government capital expenditure and international trade taxes are significant for growth while changes in tax on domestic goods and services, tax on international trade and tax on income and property matter for private capital investment. The major difference between the impact of fiscal policy on PI and economic growth, however, lies in the direction of impact.

Practical implications

Based on the findings of this study, it is recommended that different policies be pursued in the promotion of PI and economic growth. Also, given the low correlation between PI and economic growth, it is recommended that the Ghanaian private sector be focused on and fully developed in order for it to perform its role as an engine of growth.

Originality/value

Growth has been shown to be influenced by government expenditure and international trade taxes while private capital investment is influenced by taxes on domestic goods and services, international trade and on income and property. Fiscal policy authorities will find these useful.

Details

Studies in Economics and Finance, vol. 25 no. 2
Type: Research Article
ISSN: 1086-7376

Keywords

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Article

Olumide Olusegun Olaoye, Monica Orisadare and Ukafor Ukafor Okorie

The purpose of this paper is to examine the direction of causality between government expenditure and economic growth in the Economic Community of West African States…

Abstract

Purpose

The purpose of this paper is to examine the direction of causality between government expenditure and economic growth in the Economic Community of West African States (ECOWAS) countries.

Design/methodology/approach

The study adopts the recently developed panel vector autoregressive (PVAR) by Love and Abrrigo (2015) and two-step system generalized method of moments (GMM) in order to resolve the inherent problems of endogeneity and persistence in economic data.

Findings

The results from the study show no evidence of either unidirectional or bidirectional causal relationship between government expenditure and economic growth in ECOWAS member countries.

Originality/value

Unlike previous studies that adopted cointegration technique, we adopt a system GMM through the application of a dynamic PVAR framework within the framework of panel data analysis in order to address the possibility of feedback effect in the causal relationship between government expenditure and economic growth. In addition the PVAR also allows us to model shocks across countries.

Details

Journal of Economic and Administrative Sciences, vol. 36 no. 3
Type: Research Article
ISSN: 1026-4116

Keywords

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