Government Spending and Economic Groweth Nexus: An Econometric Analysis
Keywords:
Sub-Sahara Africa; Recurrent Expenditures; Capital Expenditures; Government Expenditures; Economic Growth
Abstract
Proponents of larger governments argue that government programmes provide essential public goods like education and infrastructure, which, in turn, stimulate the economy. On the other hand, individuals who advocate for more limited government assert that an increase in public spending will be detrimental to economic expansion due to the fact that many functions of government are inefficient and not in the public interest. In light of this, it is important to comprehend how different facets of government spending impact economic growth. The research utilised panel unit root tests, specifically the Pesaran and IPS tests, and panel cointegration techniques, including Pooled Mean Group and Dynamic Fixed Effect. Additionally, secondary data from World Bank indicator variables spanning from 1985 to 2021 were analysed in 32 countries located in Sub-Saharan Africa. The results of the study suggest that there exists a correlation between government expenditure and economic growth, in both the immediate and distant future. Additionally, the study emphasises the importance of institutional quality as a significant determinant of this relationship. Therefore, it is recommended that all accessible government funds be allocated towards the objective of establishing durable and self-sufficient infrastructure.
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References
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28. North, D. C. (1991). Institutions. Journal of Economic Perspectives, 5(1), pp.97-112. https://pubs.aeaweb.org/doi/pdf/10.1257/jep.5.1.97
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30. Nurudeen, A., & Usman, A. (2010). Government Expenditure and Economic Growth in Nigeria, 1970-2008: A Disaggregated Analysis. Business and Economics Journal, 1–11.
31. Obialor, M. C. (2017). Effect of government human capital investment on economic growth in Sub-Saharan Africa: Evidence from Nigeria, South Africa and Ghana (1980- 2013). International Journal of Asian Social Science, 7(4), 328-339.
32. Olaoye, O. O., Eluwole, O. O., Ayesha, A., & Afolabi, O. O. (2020). Government spending and economic growth in ECOWAS: The Journal of Economic Asymmetries, 22, e00180.
33. Olaoye, O., & Aderajo, O. (2020). Institutions and economic growth in ECOWAS: an investigation into the hierarchy of institution hypothesis (HIH). International Journal of Social Economics.
34. Olayungbo, D. O., & Olayemi, O. F. (2018). Dynamic relationships among non-oil revenue, government spending and economic growth in an oil producing country: Evidence from Nigeria. Future Business Journal, 4(2), 246-260.
35. Onoja, J. E. (2015). A dynamic analysis of the effects of changes in government spending on output in Nigeria. An International Journal of Arts and Humanities, 4(1), 140-147.
36. Ostrom, V., & Ostrom, E. (2019). Public goods and public choices. In Alternatives for delivering public services (pp. 7-49). Routledge.
37. Pesaran, H., Smith, R.,(1995). Estimating long-run relationships from dynamic heterogeneous panels. Journal of Econometrics 68, 79–113.
38. Pesaran, M.H. (2005). A simple panel unit root test in the presence of cross-section dependence. Cambridge University Working Paper
39. Popescu, C. C. (2021). Government Spending and Economic Growth: A Cointegration Analysis on Romania. Sustainability, 13(12), 6575.
40. Reinhart, C. M., & Sbrancia, M. B. (2015). The liquidation of government debt. Economic Policy, 30(82), 291-333.
41. Rodrik, D. (2000). Institutions for High-Quality Growth: What They Are and How to Acquire Them, NBER Working Paper Series, Working Paper 7540,
42. Ruiz, J. L. (2018). Financial development, institutional investors, and economic growth. International Review of Economics & Finance, 54, 218-224.
43. Serageldin, I., & Grootaert, C. (2017). Defining social capital: an integrating view 1. In Evaluation & Development (pp. 201-217). Routledge.
44. Shen, W., Yang, S. C. S., & Zanna, L. F. (2018). Government spending effects in low-income countries. Journal of Development Economics, 133, 201-219.
45. Shobe, M. A., Christy, K., Givens, A., Murphy-Erby, Y., & Rand, A. (2017). Savings program participation and outcomes for Hispanics. Journal of Ethnic & Cultural Diversity in Social Work, 26(3), 185-203.
46. Smets, F. (2018). Financial stability and monetary policy: How closely interlinked?. 35th issue (June 2014) of the International Journal of Central Banking.
47. Taiwo, M. & Abayomi, T., (2011). Government Expenditure and Economic Development :Empirical Evidence from Nigeria. European Journal of Business and Management, 3,pp.18–29.
48. Thomson, M., Kentikelenis, A., & Stubbs, T. (2017). Structural adjustment programmes adversely affect vulnerable populations: a systematic-narrative review of their effect on child and maternal health. Public health reviews, 38(1), 1-18.
49. Usman, O., & Agbede, E. A. (2015). Government expenditure and economic growth in Nigeria: A cointegration and error correction modeling.
50. World Bank. (2015). GDP Per Capita . World Development Indicators Retrieved from http://data.worldbank.org/indicator /BX.TRF.PWKR.CD.DT .
2. Aluko, O. A., & Ibrahim, M. (2020). Institutions and the financial development–economic growth nexus in sub‐Saharan Africa. Economic Notes, 49(3), e12163.
3. Asamoah, L. A., Mensah, E. K., & Bondzie, E. A. (2019). Trade openness, FDI and economic growth in sub-Saharan Africa: do institutions matter?. Transnational Corporations Review, 11(1), 65-79.
4. Bhattacharya, A., Oppenheim, J., & Stern, N. (2015). Driving sustainable development through better infrastructure: Key elements of a transformation program. Brookings Global Working Paper Series.
5. Bivand, R., & Piras, G. (2015). Comparing implementations of estimation methods for spatial econometrics. Journal of Statistical Software, 63, 1-36.
6. Facchini, F. & Melki, M., 2013. Efficient government size: France in the 20th century. European Journal of Political Economy, 31, pp.1–14.
7. Bojanic, A.N., 2013. The Composition of Government Expenditures and Economic Growth inBolivia. Latin American Journal of Economics, 50(1), pp.83–105.
8. Cakerri, L., Muharremi, O., & Madani, F. (2020). An empirical study in Albania of foreign direct investments and economic growth relationship. International Journal of Economics and Financial Issues, 10(2), 193.
9. Chen, P.F., Lee, C.C. & Chiu, Y. Bin, 2014. The nexus between defense expenditure and economic growth: New global evidence. Economic Modelling, 36, pp.474–483.
10. Chen, P.F., Lee, C.C. & Chiu, Y. Bin, 2014. The nexus between defense expenditure and economic growth: New global evidence. Economic Modelling, 36, pp.474–483.
11. Chuhan-Pole, P., Dabalen, A., Kotsadam, A., Sanoh, A., Benshaul-Tolonen, A., & Tolonen, A. K. (2015). The local socioeconomic effects of gold mining: evidence from Ghana. World Bank Policy Research Working Paper, (7250).
12. Collado, D., Cantillon, B., Van den Bosch, K., Goedemé, T., & Vandelannoote, D. (2016). The end of cheap talk about poverty reduction: the cost of closing the poverty gap while maintaining work incentives.
13. d’Agostino, G., Dunne, J. P., & Pieroni, L. (2016). Government spending, corruption and economic growth. World Development, 84, 190-205.
14. Dauns, M., Ebert, W., & Schuknecht, L. (2015). Paying for the Future: Working Systems for Pensions and Healthcare. London: Politeia.
15. Dinh Thanh, S., & Canh, N. P. (2019). Dynamics between government spending and economic growth in China: an analysis of productivity growth. Journal of Chinese Economic and Business Studies, 17(2), 189-212.
16. Fournier, J. M. (2016). The positive effect of public investment on potential growth. OECD Economics Department Working Papers, No. 1347, OECD Publishing, Paris, https://doi.org/10.1787/15e400d4-en.
17. Gopalan, S. & Rajan, R.S., (2016). Has Foreign Aid Been Effective in the Water Supply and Sanitation Sector ? Evidence from Panel Data. World Development, 85, pp.84–104.
18. Gui-Diby, S. L. (2021). Public Financial Management and Fiscal Performance: Evidence from Panel Data Analyses. Applied Economics Letters, 1-7.
19. Gui-Diby, S. L., & Renard, M. F. (2015). Foreign direct investment inflows and the industrialization of African countries. World Development, 74, 43-57.
20. Han, C. & Phillips, P.C.B. (2010). GMM Estimation for Dynamic Panels with Fixed Effects and Strong Instruments at Unity. Econometric Theory, pp.119–151.
21. Im, K.S, Pesaran, M.H., Shin, Y.C., (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics 115, 53–74.
22. Ismaila, M., & Imoughele, L. E. (2015). Macroeconomic determinants of economic growth in Nigeria: A cointegration approach. International Journal of Academic Research in Economics and Management Sciences, 4(1), 34-46.
23. Kimani, G. W., & Maingi, J. (2021). Effect of Various Categories of Government Expenditure on Economic Growth in Kenya. International Journal of Current Aspects in Finance, Banking and Accounting, 3(1), 21-40.
24. Kimaro, E. L., Keong, C. C., & Sea, L. L. (2017). Government expenditure, efficiency and economic growth: a panel analysis of Sub Saharan African low income countries. African Journal of Economic Review, 5(2), 34-54.
25. Kouassi. K., B., (2018). Public Spending and Economic Growth in Developing Countries: a Synthesis. Financial Markets, Institutions and Risks, 2(2), 22-30. DOI: 10.21272/fmir.2(2).22-30.2018.
26. Liu, Y., Li, J., & Yang, Y. (2018). Strategic adjustment of land use policy under the economic transformation. Land use policy, 74, 5-14.
27. Najmuddin, Z. (2020). The Impact of Government Expenditure on Banten Economic Growth in 2010–2017. Jurnal Perencanaan Pembangunan: The Indonesian Journal of Development Planning, 4(1), 54-64.
28. North, D. C. (1991). Institutions. Journal of Economic Perspectives, 5(1), pp.97-112. https://pubs.aeaweb.org/doi/pdf/10.1257/jep.5.1.97
29. North, D. C. (1993). Institutions and credible commitment. Journal of Institutional and Theoretical Economics (JITE)/Zeitschrift für die gesamte Staatswissenschaft, 11-23.http://dlc.dlib.indiana.edu/dlc/bitstream/handle/10535/3711/9412002.pdf?...1
30. Nurudeen, A., & Usman, A. (2010). Government Expenditure and Economic Growth in Nigeria, 1970-2008: A Disaggregated Analysis. Business and Economics Journal, 1–11.
31. Obialor, M. C. (2017). Effect of government human capital investment on economic growth in Sub-Saharan Africa: Evidence from Nigeria, South Africa and Ghana (1980- 2013). International Journal of Asian Social Science, 7(4), 328-339.
32. Olaoye, O. O., Eluwole, O. O., Ayesha, A., & Afolabi, O. O. (2020). Government spending and economic growth in ECOWAS: The Journal of Economic Asymmetries, 22, e00180.
33. Olaoye, O., & Aderajo, O. (2020). Institutions and economic growth in ECOWAS: an investigation into the hierarchy of institution hypothesis (HIH). International Journal of Social Economics.
34. Olayungbo, D. O., & Olayemi, O. F. (2018). Dynamic relationships among non-oil revenue, government spending and economic growth in an oil producing country: Evidence from Nigeria. Future Business Journal, 4(2), 246-260.
35. Onoja, J. E. (2015). A dynamic analysis of the effects of changes in government spending on output in Nigeria. An International Journal of Arts and Humanities, 4(1), 140-147.
36. Ostrom, V., & Ostrom, E. (2019). Public goods and public choices. In Alternatives for delivering public services (pp. 7-49). Routledge.
37. Pesaran, H., Smith, R.,(1995). Estimating long-run relationships from dynamic heterogeneous panels. Journal of Econometrics 68, 79–113.
38. Pesaran, M.H. (2005). A simple panel unit root test in the presence of cross-section dependence. Cambridge University Working Paper
39. Popescu, C. C. (2021). Government Spending and Economic Growth: A Cointegration Analysis on Romania. Sustainability, 13(12), 6575.
40. Reinhart, C. M., & Sbrancia, M. B. (2015). The liquidation of government debt. Economic Policy, 30(82), 291-333.
41. Rodrik, D. (2000). Institutions for High-Quality Growth: What They Are and How to Acquire Them, NBER Working Paper Series, Working Paper 7540,
42. Ruiz, J. L. (2018). Financial development, institutional investors, and economic growth. International Review of Economics & Finance, 54, 218-224.
43. Serageldin, I., & Grootaert, C. (2017). Defining social capital: an integrating view 1. In Evaluation & Development (pp. 201-217). Routledge.
44. Shen, W., Yang, S. C. S., & Zanna, L. F. (2018). Government spending effects in low-income countries. Journal of Development Economics, 133, 201-219.
45. Shobe, M. A., Christy, K., Givens, A., Murphy-Erby, Y., & Rand, A. (2017). Savings program participation and outcomes for Hispanics. Journal of Ethnic & Cultural Diversity in Social Work, 26(3), 185-203.
46. Smets, F. (2018). Financial stability and monetary policy: How closely interlinked?. 35th issue (June 2014) of the International Journal of Central Banking.
47. Taiwo, M. & Abayomi, T., (2011). Government Expenditure and Economic Development :Empirical Evidence from Nigeria. European Journal of Business and Management, 3,pp.18–29.
48. Thomson, M., Kentikelenis, A., & Stubbs, T. (2017). Structural adjustment programmes adversely affect vulnerable populations: a systematic-narrative review of their effect on child and maternal health. Public health reviews, 38(1), 1-18.
49. Usman, O., & Agbede, E. A. (2015). Government expenditure and economic growth in Nigeria: A cointegration and error correction modeling.
50. World Bank. (2015). GDP Per Capita . World Development Indicators Retrieved from http://data.worldbank.org/indicator /BX.TRF.PWKR.CD.DT .
Published
2023-06-08
How to Cite
Owusu-Mensah, M., Manu, C. A., & Arhenful, P. (2023). Government Spending and Economic Groweth Nexus: An Econometric Analysis. European Scientific Journal, ESJ, 18, 112. Retrieved from https://eujournal.org/index.php/esj/article/view/16845
Section
ESI Preprints
Copyright (c) 2023 Mathew Owusu-Mensah, Christiana Afriyie Manu, Peter Arhenful
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
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