Government Spending and Economic Groweth Nexus: An Econometric Analysis
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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