, Research Officer and Consultant at Paddel Afrique, France.
The purpose of this study is to critically analyze the theorical and empirical literature on the relationship between public expenditures and economic growth. This relationship has been source of controversy with liberal economists, Keynesians and proponents of endogenous growth. Liberal theories promoted selfregulating markets mechanisms. But these theories have also revealed the conditions of state intervention in the economy. According to Keynes, unemployment is not only linked to labor market. It is linked to other markets and especially to finance. Keynes advocated state intervention via public expenditure. That intervention should take two dominant forms, namely the economic policies in favor of investment and income redistribution policies. Robert Barro showed the contribution of public spending to economic growth, with particular emphasis on public infrastructures. He argued that government spending on infrastructure investment improves private companies’ productivity. Thus, it causes increasing return to scale, in the long run. He recommended therefore its funding through taxation. The theories listed above focused on the necessity of state intervention in the economy. They addressed indirectly the impact of public spending on economic growth. Nevertheless, it should be stressed that the evolution of public spending may depend on economic growth. Adolph Wagner showed that public expenditures increase more than proportionally in relation to economic growth. Numerous empirical studies tested the relationship between the two variables in developing countries. These studies involved the level of public spending and its composition. In both cases, the results are controversial. A number of studies confirmed Wagner’ law; other studies validated the Keynesian assumption. Other studies rejected both Wagner’s law and Keynesian assumption.
Keywords: National Government Expenditure, Public Economics, Public Expenditure, Public Finance, economic growth, Developing countries.
JEL Classification: H50, H54, O10, O4.
Cite as: K. B. Kouassi. (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
- Afonso, A., Furceri, D. (2010). Government size, composition, volatility and economic growth. European Journal of Political Economy, 26, 517–532.
- Afonso, A., Schuknecht, L., Tanzi, V. (2005). Public sector efficiency: an international comparison. Public choice, 123, 321-347.
- Agbonkhese, A.O., Asekome, M.O. (2014). Impact of public expenditure on the growth of Nigerian economy. European Scientific Journal, ESJ 10.
- Ahmad, M. (2014). Government expenditure and economic growth: An econometric test for India. International Journal of Social Science and Humanities.
- Akhabbar, A., Lallement, J. (2011). Applying general equilibrium theory: from Walras to Leontief.
- Akitoby, B., Clements, B., Gupta, S., Inchauste, G. (2006). Public spending, voracity, and Wagner’s law in developing countries. European Journal of Political Economy, 22, 908-924.
- Aschauer, D.A. (1989). Is public expenditure productive? Journal of monetary economics 23, 177-200.
- Ashwani, B., Sheera, V.P. (2017). Public spending and economic growth for Indian states. International Journal of Public Sector Performance Management 3, 250-265.
- Bagdigen, M., Cetintas, H. (2004). Causality between public expenditure and economic growth: The Turkish case.
- Barbiero, O., Cournède, B. (2013). New econometric estimates of long-term growth effects of different areas of public spending.
- Barro, R.J. (1990). Government spending in a simple model of endogeneous growth. Journal of political economy 98, S103–S125.
- Barro, R.J., Sala-i-Martin, X. (1992). Public finance in models of economic growth. The Review of Economic Studies, 59, 645-661.
- Bayraktar, N., Moreno-Dodson, B. (2015). How can public spending help you grow? An empirical analysis for developing countries. Bulletin of Economic Research, 67, 30-64.
- Bhatt, A., Sardoni, C. (2016). Public Expenditure and Growth: The Indian Case.
- Bitone, A., Carzola, A., Dollo, C., Drai, A.-M. (2002). Etat. In: Dictionnaire des sciences économiques. Armand Colin.
- Bleaney, M., Gemmell, N., Kneller, R. (2001). Testing the endogenous growth model: public expenditure, taxation, and growth over the long run. Canadian Journal of Economics/Revue canadienne d’économique 34, 36-57.
- Bose, N., Haque, M.E., Osborn, D.R. (2007). Public expenditure and economic growth: a disaggregated analysis for developing countries. The Manchester School 75, 533-556.
- Carrère, C., De Melo, J. (2012). Fiscal spending and economic growth: some stylized facts. World Development 40, 1750-1761.
- Cazzavillan, G. (1996). Public spending, endogenous growth, and endogenous fluctuations. Journal of Economic Theory 71, 394-415.
- Chen, B.-L. (2006). Economic growth with an optimal public spending composition. Oxford Economic Papers 58, 123-136.
- Corsetti, G., Roubini, N. (1996). Optimal government spending and taxation in endgenous growth models. National bureau of economic research.
- Czernich, N., Falck, O., Kretschmer, T., Woessmann, L. (2011). Broadband infrastructure and economic growth. The Economic Journal 121, 505-532.
- De La Croix, D., Michel, P. (2002). A theory of economic growth: dynamics and policy in overlapping generations. Cambridge University Press.
- Delavallade, C. (2006). Corruption and distribution of public spending in developing countries. Journal of economics and finance, 30, 222-239.
- Demurger, S. (2001). Infrastructure development and economic growth: an explanation for regional disparities in China? Journal of Comparative economics, 29, 95-117.
- Devarajan, S., Swaroop, V. (1993). What do governments buy? The composition of public spending and economic performance.
- Devarajan, S., Swaroop, V., Zou, H. (1996). The composition of public expenditure and economic growth. Journal of monetary economics, 37, 313-344.
- Dikeogu, C.C., Ohale, L., Otto, G. (2016). Public expenditure and economic growth in Nigeria. International Journal of Advanced Academic Research.
- Esfahani, H.S., Ramı́rez, M.T. (2003). Institutions, infrastructure, and economic growth. Journal of development Economics, 70, 443–477.
- Fan, S., Hazell, P.B., Thorat, S. (1998). Government spending, growth and poverty: An analysis of interlinkages in rural India. International Food Policy Research Institute (IFPRI).
- Fan, S., Yu, B., Saurkar, A. (2008). Public spending in developing countries: trends, determination, and impact. Public expenditures, growth, and poverty, 20–55.
- Fölster, S., Henrekson, M. (2001). Growth effects of government expenditure and taxation in rich countries. European Economic Review, 45, 1501–1520.
- Gangal, V.L., Gupta, H., 2013. Public Expenditure and Economic Growth a case study of India. Global Journal of Management and Business Studies, 3, 191–196.
- Ghosh, S., Gregoriou, A. (2008). The composition of government spending and growth: is current or capital spending better? Oxford Economic Papers, 60, 484–516.
- Glomm, G., Ravikumar, B. (1997). Productive government expenditures and long-run growth. Journal of Economic Dynamics and Control, 21, 183–204.
- Govindaraju, V.C., Rao, R., Anwar, S. (2011). Economic growth and government spending in Malaysia: a re-examination of Wagner and Keynesian views. Economic Change and Restructuring, 44, 203–219.
- Gupta, S., Clements, B., Baldacci, E., Mulas-Granados, C. (2005). Fiscal policy, expenditure composition, and growth in low-income countries. Journal of International Money and Finance, 24, 441–463.
- Hayek, F.A. (1944). The Road to Serfdom. Dymock’s Book Arcade.
- Hayek, F. (1944). Scientism and the study of society. Part III. Economica 11, 27–39.
- Herndon, T., Ash, M., Pollin, R. (2014). Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff. Cambridge journal of economics, 38, 257–279.
- Hsieh, E., Lai, K.S. (1994). Government spending and economic growth: the G-7 experience. 0003-6846 26, 535–542.
- Hulten, C.R. (1996). Infrastructure capital and economic growth: How well you use it may be more important than how much you have. National Bureau of Economic Research.
- Ighodaro, C.A., Oriakhi, D.E. (2010). Does the relationship between government expenditure and economic growth follow Wagner’s law in Nigeria. Annals of University of Petrosani Economics, 10, 185–198.
- Iheanacho, E. (2016). The Contribution of Government Expenditure on Economic Growth of Nigeria Disaggregated Approach. Int J Eco Manag Sci.
- Jaroensathapornkul, J. (2010). Spending for growth: An empirical evidence of Thailand. Applied Economics Journal, 17, 27–44.
- Jiranyakul, K., Brahmasrene, T. (2007). The relationship between government expenditures and economic growth in Thailand. Journal of Economics and Economic Education Research, 8, 93.
- Judd, K.L. (1999). Optimal taxation and spending in general competitive growth models. Journal of Public Economics, 71, 1–26.
- Korkmaz, S. (2013). Evaluating the relationship between public expenditures and economic growth for Turkey. Actual Problems of Economics, 382–391.
- Kumar, S. (2009). Further evidence on public spending and economic growth in East Asian countries.
- Künü, S. (2015). The Effects of Public Expenditures on Economic Growth: An Empirical Analysis for Turkey. International Journal of Business and Social Science, 6.
- Maku, O.E. (2009). Does government spending spur economic growth in Nigeria?
- Mansouri, B. (2008). Fiscal policy and economic growth: Egypt, Morocco and Tunisia compared, in: Proceeding in UNECA Conference on: Macroeconomic Policy, Productive Capacity and Economic Growth in Africa. Addis Ababa, 23–25.
- Minea, A. (2008). The role of public spending in the growth theory evolution. Romanian Journal of Economic Forecasting 2, 99-120.
- Mohtadi, H., Roe, T.L. (2003). Democracy, rent seeking, public spending and growth. Journal of Public Economics 87, 445–466.
- Ng, Y.-K. (2000). The optimal size of public spending and the distortionary cost of taxation. National Tax Journal, 253-272.
- Nketiah-Amponsah, E. (2009). Public spending and economic growth: evidence from Ghana (1970–2004). Development Southern Africa, 26, 477-497.
- Nworji, I.D., Okwu, A.T., Obiwuru, T.C., Nworji, L.O. (2012). Effects of public expenditure on economic growth in Nigeria: A disaggregated time series analysis. International Journal of Management Sciences and Business Research, 1, 1–15.
- Odedokun, M.O. (2001). Public finance and economic growth: Empirical evidence from developing countries. WIDER Discussion Papers//World Institute for Development Economics (UNU-WIDER).
- Okoro, A.S., (2013). Government spending and economic growth in Nigeria (1980-2011). Global Journal of Management And Business Research.
- Olabisi, A.S., Oloni, E.F. (2012). Composition of public expenditure and economic growth in Nigeria. Journal of Emerging Trends in Economics and Management Sciences, 3, 403.
- Olulu, R.M., Erhieyovwe, E.K., Andrew, U. (2014). Government expenditures and economic growth: The Nigerian experience. Mediterranean Journal of social sciences, 5, 89.
- Oyinlola, M.A., Akinnibosun, O. (2013). Public expenditure and economic growth nexus: Further evidence from Nigeria. Journal of Economics and International Finance, 5, 146.
- Plümper, T., Martin, C.W. (2003). Democracy, government spending, and economic growth: A political-economic explanation of the Barro-effect. Public Choice 117, 27-50.
- Rajkumar, A.S., Swaroop, V. (2008). Public spending and outcomes: Does governance matter? Journal of development economics, 86, 96-111.
- Röller, L.-H., Waverman, L. (2001). Telecommunications infrastructure and economic development: A simultaneous approach. American economic review 909–923.
- Saad, W., Kalakech, K. (2009). The nature of government expenditure and its impact on sustainable economic growth. Middle Eastern Finance and Economics, 1, 39-47.
- Samuels, W.J., Biddle, J.E., Davis, J.B. (2008). A companion to the history of economic thought. John Wiley & Sons.
- Segun, O.M., Adelowokan, O.A. (2015). Measuring the Impact of Public Expenditure on Economic Growth in Nigeria. Journal of Social Science Studies 2, 46.
- Siraj, T. (2012). Official development assistance (ODA), public spending and economic growth in Ethiopia. Journal of Economics and International Finance, 4, 173.
- Smith, D.B. (2006). Living with Leviathan: public spending, taxes and economic performance.
- Srinivasan, P. (2013). Causality between Public Expenditure and Economic Growth: The Indian Case. International Journal of Economics & Management, 7.
- Suanin, W. (2015). The impact of government expenditure on economic growth in Thailand. Presented at the International Conference on Trends in Economics, Humanities and Management, Singapore.
- Sunday, O.A. (2013). Government spending and economic growth in Nigeria (1980-2011). Singaporean Journal of Business, Economics and Management Studies, 2, 81-92.
- Tang, C.F. (2009). An examination of the government spending and economic growth nexus for Malaysia using the leveraged bootstrap simulation approach. Global Economic Review, 38, 215-227.
- Turnovsky, S.J., Fisher, W.H. (1995). The composition of government expenditure and its consequences for macroeconomic performance. Journal of Economic Dynamics and Control, 19, 747-786.
- Usman, A., Mobolaji, H.I., Kilishi, A.A., Yaru, M.A., Yakubu, T.A. (2011). Public expenditure and economic growth in Nigeria. Asian Economic and Financial Review 1, 104.
- Vaggi, G., Groenewegen, P. (2016). A concise history of economic thought: From mercantilism to monetarism. Springer.
- Van Dalen, H.P., Swank, O.H. (1996). Government spending cycles: Ideological or opportunistic? Public Choice, 89, 183-200.
- Ventelou, B., Bry, X. (2006). The role of public spending in economic growth: Envelopment methods. Journal of Policy modeling, 28, 403-413.
- Von Hayek, F.A. (1931). Prices and production.
- Yasin, M. (2003). Public spending and economic growth: empirical investigation of Sub-Saharan Africa. Southwestern Economic Review, 30, 59-68.
- Yilgör, M., Ertugrul, C., Celepcioglu, M. (2012). The effect of public expenditure on economic growth: Turkey example. Investment Management and Financial Innovations, 9, 193-202.
- Zhang, T., Zou, H. (1998). Fiscal decentralization, public spending, and economic growth in China. Journal of public economics, 67, 221-240.
- Zou, H. (1996). Taxes, federal grants, local public spending, and growth. Journal of Urban Economics, 39, 303-317.