The role of government spending on economic growth in a developing country

The issue of whether government expenditure helps or hinders economic growth is still debatable. This study examines the contribution of government spending towards economic growth in South Africa using annual data from 1980 – 2014. The cointegration approach and Vector Error Correction Model were used to analyse the data. The cointegration test results indicate that there is long run relationship between government expenditure and economic growth in South Africa. The VECM outcome indicates a positive and significant link between economic growth and expenditure on the long run. There is a positive and significant relationship between exchange rate and economic growth and a significant and negative relationship between economic growth and private consumption. Based on these findings, the correlation between government expenditure and economic growth showed that there is positive relationship on the long run in South Africa, while there is a negative and significant relationship between government spending and economic growth on the short run. More spending should therefore be directed towards important sectors such as infrastructural development and industrial development in order to accelerate economic growth. There is also a need for fiscal policy to be used as an instrument to regulate the amount of money in the economy.

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The impact of a fuel levy on economic growth in South Africa

Journal of Energy in Southern Africa ◽

10.17159/2413-3051/jesa.v.1i1.2775 ◽

2018 ◽

Vol 29 (1) ◽

pp. 41-49 ◽

Cited By ~ 1

Author(s):

Thobeka Ncanywa ◽

Nosipho Mgwangqa

Keyword(s):

Economic Growth ◽

South Africa ◽

Government Expenditure ◽

Negative Relationship ◽

Petroleum Products ◽

Tax System ◽

Vector Autoregressive ◽

Long Run ◽

The Government ◽

The Impact

Government expenditure is one of the factors that could influence economic growth and it depends on borrowing or on the amount of tax revenue. A fuel levy, as an excise tax charged on petroleum products such as petrol, diesel and biodiesel, can be an important source of revenue for the government. It can, however, be a burden on fuel consumers. The present study, as an effort to address this controversy, used the vector autoregressive approach to examine the impact of fuel levies on economic growth in South Africa. The results showed a long-run unidirectional negative relationship between economic growth and fuel levy. The conclusion was that the economy needs to grow at a higher rate so as to boost tax revenues and public expenditure. Strong revenue collection, therefore, depends on highly increasing economic growth and efficient tax administration. The implication of a growth-oriented tax system is to minimise distortions created by the tax system and create incentives for drivers of economic growth.

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Standard of living, quality of life and per capita GDP: a South African experience

Corporate Ownership and Control ◽

10.22495/cocv11i1c10p6 ◽

2013 ◽

Vol 11 (1) ◽

pp. 882-889 ◽

Cited By ~ 2

Author(s):

Raphael Tabani Mpofu

Keyword(s):

Quality Of Life ◽

South Africa ◽

Human Development ◽

Government Spending ◽

Government Expenditure ◽

Standard Of Living ◽

Role Of Government ◽

Per Capita

This study looked at the phenomenon of the quality of life (QoL) as measured by the Human Development Index (HDI), which is a composite statistic used to rank countries by the level of “human development”. Measuring and determining what is QoL is not an easy task. In this study, using HDI as the yardstick for QoL, the concepts of standard of living and per capita income were examined closely in relation to the role of government in its public expenditure programmes and how these programmes in turn influenced QoL. This research question was seen as the key to addressing the phenomenon of QoL. In particular, the role of government expenditure on health and education seems to signify the commitment of a government in improving the HDI or QoL. Using data on government expenditure of South Africa for the period 1995 to 2011, the relationships amongst these variables were examined. The findings indicate that there seems to be a significant correlation between HDI and government spending on health and education as a percentage of GDP, but there seems to be of no significance to include the variable government spending on health and education as a percentage of total government spending. The findings tell us that between 1995 and 2011, government spending on education as a percentage of GDP has had a positive impact on HDI. However, government spending on health as a percentage of GDP has had a retarding effect as shown by the negative coefficient of variation. It then implies that for South Africa to realize the MDG goals and improve on the HDI, public spending on health as a percentage of GDP needs to be significantly increased.

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The effectiveness of government expenditure on economic growth in Botswana

African Journal of Economic and Management Studies ◽

10.1108/ajems-03-2018-0081 ◽

2019 ◽

Vol 10 (3) ◽

pp. 368-384 ◽

Cited By ~ 1

Author(s):

Kafayat Amusa ◽

Mutiu Abimbola Oyinlola

Keyword(s):

Economic Growth ◽

Government Spending ◽

Negative Impact ◽

Positive Impact ◽

Government Expenditure ◽

Public Spending ◽

Empirical Literature ◽

Content Type ◽

Long Run ◽

Short Run

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.

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The Asymmetric Influence of Financial Development on Economic Growth in Kenya: Evidence From NARDL

SAGE Open ◽

10.1177/2158244019894071 ◽

2020 ◽

Vol 10 (1) ◽

pp. 215824401989407 ◽

Cited By ~ 1

Author(s):

Hao Chen ◽

Duncan O. Hongo ◽

Max William Ssali ◽

Maurice Simiyu Nyaranga ◽

Consolata Wairimu Nderitu

Keyword(s):

Economic Growth ◽

Financial Development ◽

Government Spending ◽

Capital Accumulation ◽

Research Question ◽

Government Expenditure ◽

Model Specification ◽

Long Run ◽

Short Run ◽

Auto Regressive

This study analyzed the asymmetric effects of financial development on economic growth using a model augmented with inflation and government expenditure asymmetries to inform model specification. The research question used entails, Do their asymmetry changes significantly influence growth? Using the nonlinear auto-regressive distributive lag (NARDL), the most significant results posit that positive shocks in financial development in the short run and its negative shocks in the long run increase and decrease economic growth, respectively. Regarding inflation, its positive (negative) shocks in both runs, respectively, reduce (increase) economic growth. In comparison, positive shocks in financial development that spur growth in the short run and negative shocks in financial development (government expenditure) that increase (reduce) growth are the most domineering effects as the rest of the shocks insignificantly affect growth. Results clearly demonstrate to an environment steered by stable and sustainable inflation that regulated government expenditure and comprehensive financial system deepening would positively cause economic growth. Therefore, appropriate policies that favor low inflation and reduced government spending, expansion of feasibly reformed financial institutions, capital accumulation, and increased resource mobilization should be instituted if real growth is to positively happen.

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An Investigation of the Dynamic Effect of Foreign Direct Investment (FDI) and Interest Rates on GDP in South Africa

Journal of Economics and Behavioral Studies ◽

10.22610/jebs.v10i5(j).2495 ◽

2018 ◽

Vol 10 (5(J)) ◽

pp. 29-37

Author(s):

Thomas Habanabakize ◽

Daniel F Meyer

Keyword(s):

Economic Growth ◽

South Africa ◽

Foreign Direct Investment ◽

South African ◽

Significant Relationship ◽

Direct Investment ◽

Positive Relationship ◽

Positive Impact ◽

Long Run ◽

Repo Rate

Economic growth in South Africa has been in the â€œdoldrumsâ€ for the past decade. If well managed, foreign direct investment (FDI) and repo rate (interest rate) could have a positive impact and assist in rapid economic growth so urgently needed in South Africa. FDI has been a driving force for growth in many developing economies. Not enough has been done to attract FDI in South Africa. The country has enormous ability and capacity to attract FDI inflows and to have the advantages from it. A quantitative research approach was used to analyse the association amongst the variables which include FDI, GDP and repo rate in the South African economy. The South African Reserve Bank database was used and the period analysed is from 2000 to 2016. Statistical and econometric methods such as correlation analysis, unit root tests, ARDL Bounds test for cointegration, an error correction model (ECM), and the Granger causality tests were used. Subsequently, after the econometric model was estimated, findings indicated the existence of a long-run relationship between the three variables. While, a significant positive relationship exists between FDI and GDP, a negative long-run relationship was found between GDP and repo rate and interestingly a nonsignificant relationship between repo rate and FDI. In the short run, the positive effect of FDI on GDP is minimal whilst a significant and positive relationship exists between GDP and repo rate. The results did also show some limitations in the results, with regards to FDI and repo rate that there is no significant relationship between the variables, meaning that repo rate does not have an impact on FDIs. Although some long-run evidence was found of FDI playing a role in economic growth in South Africa, such impact is limited. Also very interesting is that the repo rate and FDI do not have a statistically significant relationship. This could be due to the rising risks associated with investments in the country. In conclusion, there are many variables which could have a positive impact on the attraction of FDIs and such factors will be explored further in future studies.

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The Nexus Between Taxation, Government Expenditure and Economic Growth in South Africa. A fresh evidence from combined cointegration test

Studies of Applied Economics ◽

10.25115/eea.v39i3.3835 ◽

2021 ◽

Vol 39 (3) ◽

Author(s):

Delani Moyo ◽

Ahmed Samour ◽

Turgut Tursoy

Keyword(s):

Economic Growth ◽

South Africa ◽

Government Expenditure ◽

Distributed Lag ◽

Distributed Lag Model ◽

Autoregressive Distributed Lag ◽

Long Run ◽

Integration Test ◽

Lag Model ◽

The Relationship

The relationship between taxation, government expenditure and economic growth. is a widely debated issue in the literature. The aim of this research is to present a fresh evidence from the nexus of taxation, government expenditure and economic growth in for the period 1991-2018 in South Africa, using recently developed combined co-integration test. Autoregressive Distributed Lag model(ARDL) is utilized to examine coefficients between the variables in the short and long-run The newly advanced Bayer-Hacks (BH) combined co-integration approach is employed so as to verify the ARDL bounds result. The empirical results from ARDL model revealed that there is a positive and significant relationship between government expenditure and economic growth in both short and long run. In addition, the study shows that tax revenue has a significant positive relationship with the economic growth. Therefore, levels of taxation and government expenditure are favorable to the growth of economy in South Africa. The research proposed that decision makers in South Africa should pay more attention on Taxation and government expenditure policies and the gains from economic growth such as channel much of its expenditure towards the manufacturing and agricultural sectors, which have great potentials of increasing the supply of the products. Which in turn leads to reduce prices and increase in the rates of employment. This would, also make the country’s exports prices competitive.

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The composition of productive government expenditure

Indian Growth and Development Review ◽

10.1108/17538250810868134 ◽

2008 ◽

Vol 1 (1) ◽

pp. 57-83 ◽

Cited By ~ 11

Author(s):

Goncalo Monteiro ◽

Stephen J. Turnovsky

Keyword(s):

Economic Growth ◽

Human Capital ◽

Government Spending ◽

Public Investment ◽

Government Expenditure ◽

Physical Capital ◽

Content Type ◽

Trade Offs ◽

Long Run ◽

Productive Government Spending

PurposeRecent research supports the role of productive government spending as an important determinant of economic growth. Previous analyses have focused on the separate effects of public investment in infrastructure and on investment in education. This paper aims to introduce both types of public investment simultaneously, enabling the authors to address the trade‐offs that resource constraints may impose on their choice.Design/methodology/approachThe authors employ a two‐sector endogenous growth model, with physical and human capital. Physical capital is produced in the final output sector, using human capital, physical capital, and government spending on infrastructure. Human capital is produced in the education sector using human capital, physical capital, and government spending on public education. The introduction of productive government spending in both sectors yields an important structural difference from the traditional two‐sector growth models in that the relative price of human to physical capital dynamics does not evolve independently of the quantity dynamics.FindingsThe model yields both a long‐run growth‐maximizing and welfare‐maximizing expenditure rate and allocation of expenditure on productive capital. The welfare‐maximizing rate of expenditure is less than the growth‐maximizing rate, with the opposite being the case with regard to their allocation. Moreover, the growth‐maximizing value of the expenditure rate is independent of the composition of government spending, and vice versa. Because of the complexity of the model, the analysis of its dynamics requires the use of numerical simulations the specific shocks analyzed being productivity increases. During the transition, the growth rates of the two forms of capital approach their common equilibrium from opposite directions, this depending upon both the sector in which the shock occurs and the relative sectoral capital intensities.Research limitations/implicationsThese findings confirm that the form in which the government carries out its productive expenditures is important. The authors have retained the simpler, but widely employed, assumption that government expenditure influences private productivity as a flow. But given the importance of public investment suggests that extending this analysis to focus on public capital would be useful.Originality/valueTwo‐sector models of economic growth have proven to be a powerful tool for analyzing a wide range of issues in economic growth. The originality of this paper is to consider the relative impact of government spending on infrastructure and government spending on human capital and the trade‐offs that they entail, both in the long run and over time.

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Relative Impact of Domestic and Foreign Public Debt on Economic Growth in South Africa

Journal of Applied Social Science ◽

10.1177/1936724420980414 ◽

2020 ◽

pp. 193672442098041

Author(s):

Talknice Saungweme ◽

Nicholas M. Odhiambo

Keyword(s):

Economic Growth ◽

South Africa ◽

Public Debt ◽

Foreign Debt ◽

Negative Relationship ◽

Relative Impact ◽

Long Run ◽

Short Run ◽

The Government ◽

The Impact

This paper investigates the debt-growth nexus by testing both the impact of aggregate public debt on economic growth and the relative impact of domestic and foreign public debt on economic growth using South Africa as the case study—from 1970 to 2017. Based on the autoregressive distributed lag (ARDL) technique, the findings reveal that the impact of aggregated public debt on economic growth in South Africa is statistically significant and negative, both in the short run and in the long run. The results further reveal that domestic public debt and economic growth have a statistically significant and positive relationship in the short run only. Furthermore, foreign public debt has a statistically significant and negative relationship with economic growth but only in the long run. Therefore, the study recommends the government to manage effectively its debt and to finance long-term high-returning productive investments that should translate into economic growth. Finally, the study cautions the country against growing public debt, predominantly foreign debt, to finance its increasing recurrent expenditure needs.

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MODES OF ISLAMIC FINANCING AND ECONOMIC GROWTH: EVIDENCE FROM INDONESIA

Journal of Islamic Monetary Economics and Finance ◽

10.21098/jimf.v7i3.1374 ◽

2021 ◽

Vol 7 (3) ◽

Author(s):

Laily Dwi Arsyianti ◽

Fadiyah Hasta Puspitasari ◽

Marhamah Muthohharoh

Keyword(s):

Economic Growth ◽

Consumer Price Index ◽

Government Expenditure ◽

Negative Relationship ◽

Household Expenditure ◽

Dummy Variable ◽

Long Run ◽

Fixed Capital Formation ◽

Short Run ◽

Economy System

Financing is expected to positively support economic growth, especially using Islamic contracts, which are strictly obliged to link the monetary and real sectors. Crises can devastate the financial and economy sectors, and also shock the real sector. This study aims to analyse the effect of Islamic-based financing on economic growth in Indonesia using the ARDL method. Gross fixed capital formation, household expenditure, government expenditure, exports, imports and the consumer price index, together with Islamic financing, are analysed in terms of their effect on economic growth in Indonesia during the period 2003-2018, in which the 2008 crisis is set as a dummy variable. Musharaka financing, which is based on profit-loss sharing, has a relationship with economic growth in the short run, but not in the long run. Furthermore, mudaraba financing unpredictably shows a negative relationship with economic growth, while Murabaha does not have significant effect in either short- or long-run estimation. The results imply that the prevailing economy system, which accommodates household expenditure, leads to an increase in economic growth, so is recommended as a priority sector for development. This study supports the notion that the current traditional economic stance may not suit the measurement of Islamic finance implication towards economic growth. The Maqasid sharia inclusiveness measurement is considered as an alternative estimation of the effect of modes of financing on economic growth.

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DÉFICIT FISCAL, CRECIMIENTO ECONÓMICO E INFLACIÓN, ¿UNA RELACIÓN EXÓGENA?

Investigación Económica ◽

10.22201/fe.01851667p.2020.312.75373 ◽

2020 ◽

Vol 79 (312) ◽

pp. 89

Author(s):

Federico Novelo Urdanivia ◽

Nancy Muller Durán

Keyword(s):

Economic Growth ◽

Government Expenditure ◽

Negative Relationship ◽

Sole Source ◽

Output Growth ◽

Fiscal Deficit ◽

Economic Growth Rate ◽

Long Run ◽

The Government ◽

The Relationship

En este artículo analizamos la relación entre el crecimiento económico, el déficit fiscal y la inflación en México, considerando el periodo en que ha estado vigente la autonomía del Banco de México respecto del gobierno. Estimamos dos modelos CVAR para demostrar que si el gasto de gobierno es endógeno al crecimiento económico, entonces el déficit fiscal no es necesariamente la única causa de la inflación. Nuestros resultados muestran que, aún sin causalidad en el sentido de Granger, existe una relación negativa de largo plazo entre el gasto de gobierno y la inflación. De manera conjunta, ambos modelos revelan que a mayor crecimiento económico, mayor gasto fiscal y menor inflación. FISCAL DEFICIT, ECONOMIC GROWTH AND INFLATION, AN EXOGENOUS RELATIONSHIP?ABSTRACTThis paper deals with the relationship between output growth, fiscal deficit and the rate of inflation in Mexico for the period of the independence of Banco de México. A couple of CVAR models are estimated with the aim of testing whether the government expenditure is endogenous to economic growth, in which case the fiscal deficit will not necessarily be the sole source of inflation. According to our empirical results, it is shown that there is a long-run negative relationship between government spending and inflation, without involving a Granger causality. Both models jointly reveal that the higher the economic growth rate, the larger government expenditure and the lower the rate of inflation.

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