Government expenditure and growth in developing countries

Abstract

Purpose

This article investigates the impact of the growth of the share of various government expenditure programmes in the GDP on economic growth in developing countries while taking into consideration the major issue of potential simultaneity.

Findings

Based on data from the World Bank and using two samples of 28 developing economies, we find that per capita GDP growth is dependent upon the growth of per capita public health expenditure in the GDP, growth of per capita public spending on education in the GDP, population growth, growth of the share of total health expenditure in the GDP and the share of gross capital formation in the GDP.

Practical implications

Statistical results of such empirical examination will assist policy-makers in developing countries prioritize their government expenditure in order to stimulate economic growth.

Methodology/approach

Data for all variables are from the World Development Indicators (2008 and 2010). We specify and estimate a simultaneous equations model which consists of two government expenditure growth equations and a GDP growth equation. We observe that some coefficient estimates do not have the expected sign due to possible collinearity among some independent variables.