Volatility in Discretionary Public Spending and Economic Growth:
      A Cross Country Analysis

Volatility in discretionary public spending has diverse implications for the overall economic performance of economies. In this study, we examine the impact of volatile non�systematic discretionary public spending on economic growth. By employing cross-country data of 74 developed and developing economies, we find that volatility in non-systematic discretionary public spending has an adverse impact on economic growth. In particular, such impact is severe in the case of less developed economies. Our findings are robust to the problem of endogeneity. In order to ensure the accuracy of the results, we conduct sufficient sensitivity analysis by incorporating a bunch of potential control variables. In most of the cases, the results with regard to the policy volatility remain intact. This suggests that effective spending rules, i.e. permanent numerical limits, should be imposed on budgetary aggregates to restrain governments from the volatile use of discretionary spending. JEL Classification: H3; H5 Keywords: Volatility in Discretionary Public Spending, Economic Growth, Effective Spending Rule

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Impact of Project and Programme Aid on Economic Growth: A Cross Country Analysis

The Pakistan Development Review ◽

10.30541/v57i2pp.145-174 ◽

2018 ◽

Vol 57 (2) ◽

pp. 145-174

Author(s):

Pervez Zamurrad Janjua ◽

Malik Muhammad ◽

Muhammad Usman

Keyword(s):

Economic Growth ◽

Principal Component ◽

Economic Policies ◽

Method Of Moment ◽

System Equation ◽

Moment Estimation ◽

Country Analysis ◽

Procurement Reform ◽

Cross Country ◽

The Impact

This study examines the impact of foreign aid instruments, namely Project Aid and Programme Aid, on economic growth of 27 aid-receiving countries. The study constructs a system of three equations, i.e. growth, investment and human capital. Using the Generalised Method of Moment estimation technique, the study concludes that while Project Aid has a positive and significant impact on economic growth, Programme Aid has an insignificant impact on economic growth. Additionally, the study finds that economic policies do enhance effectiveness of aid at aggregate level. Therefore, the capacity of aid-recipient countries to effectively use their resources for economic development needs due consideration. Keywords: Project Aid, Programme Aid, Economic Growth, Conditionality, Procurement Reform, System Equation Method, Generalised Method of Moment (GMM), Principal Component Analysis

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The Impact of Real Exchange Rate Undervaluation on Economic Growth: Evidence from Panel Cointegration Approach

10.21203/rs.3.rs-16924/v1 ◽

2020 ◽

Author(s):

Mehdi Seraj ◽

Cagay Coskuner ◽

Seyi Saint Akadiri ◽

Negar Bahadori

Keyword(s):

Economic Growth ◽

Exchange Rate ◽

Real Exchange Rate ◽

Developing Economies ◽

Panel Cointegration ◽

Least Square ◽

Ordinary Least Square ◽

Developed Economies ◽

Periodic Data ◽

The Impact

Abstract This study revisited Dani Rodrik (2008) work on real exchange rate undervaluation and economic growth by using the Fully Modified Ordinary Least Square (FMOLS) and Dynamic Ordinary Least Square (DOLS). This research, to the best of authors' knowledge, is the first to use FMOLS and DOLS approach to empirically evaluate Rodrik work on the real exchange rate and economic growth using a Panel periodic data (six sets of five years) of 82 countries throughout 1990 to 2018. We used the Balassa Samuelson method to estimate the predicted real exchange rate and real exchange rate undervaluation. Finally, the study is in support of Rodrik conclusion that, real exchange undervaluation has a significant impact on the economic growth of the developing economies and statistically insignificant in the developed economies.

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Institutional development, transaction costs and economic growth: evidence from a cross-country investigation

Journal of Institutional Economics ◽

10.1017/s1744137415000077 ◽

2015 ◽

Vol 12 (1) ◽

pp. 129-159 ◽

Cited By ~ 9

Author(s):

MITJA KOVAČ ◽

ROK SPRUK

Keyword(s):

Economic Growth ◽

Transaction Costs ◽

Economic Performance ◽

Model Calibration ◽

Institutional Development ◽

Panel Data Regression ◽

Data Regression ◽

Negative Effect ◽

Cross Country ◽

The Impact

Abstract:This paper seeks to quantify the impact of transaction costs on cross-country economic growth. Our evidence from a cross-country panel data regression analysis reveals a persistent and robust negative effect of increasing transaction costs on the path of economic growth. The growth-enhancing effects of lower transaction costs are confirmed after controlling for the set of conditioning variables and further demonstrated in a cross-country growth model calibration. The results provide evidence that transaction costs might indeed be central to the study of cross-country productivity differences, suggest the importance of contractual relations and indicate their significant impact on cross-country economic performance over time.

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Innovations in achieving sustainable economic performance under income inequality

Marketing and Management of Innovations ◽

10.21272/mmi.2021.2-12 ◽

2021 ◽

Vol 5 (2) ◽

pp. 146-154

Author(s):

Inna Cabelkova ◽

Manuela Tvaronaviciene ◽

Wadim Strielkowski

Keyword(s):

Economic Growth ◽

Human Capital ◽

Income Inequality ◽

Economic Performance ◽

Financial Services ◽

Developing Economies ◽

Well Being ◽

Middle Income ◽

Middle Income Countries ◽

The Impact

The negative effect of income inequality on economic growth represents a topic that constitutes a broad topic of research in the standard economic theory. One of the immediate consequences of income inequality is diminished consumption. Many «poor» customers cannot provide sufficient demand for the producers, causing overproduction that might lead to an economic crisis. It constitutes a problem because sustainable economic performance needs to be achieved under the conditions of income inequality. Reducing social and economic inequality in countries is an essential step towards ensuring that no one is left behind. It is also part of the 10th Sustainable Development Goal aimed to reduce it by 2030. Inequality is based on the income distribution between the top 1% and the bottom 99% of households in any given country. The degree of inequality could play a beneficial role if it is driven by market forces and is associated with incentives to increase growth. In developing and emerging countries, greater equality and improvements in living standards are needed to enable populations to flourish. Inequality reduction is one of the most critical steps a government could take to improve the well-being of its population. The income inequality growth increases human capital in poor countries and reduces it in high and middle-income countries. In poorer countries, it increases them, but in higher – and middle-income countries, it reduces them. Income inequality could be reduced by improving human capital and general skill levels, correcting labor-market policies, and making better use of financial services. In turn, sustainable economic growth could reverse the negative effects of inequality, reducing the need for high-wage and higher-earning households. Thus, it provides higher economic growth. This paper discusses three ways to circumvent the impact of decreasing consumption on economic growth adopted in developing economies over the last fifty years, such as increasing exports, providing loans for consumption, and printing new money. The findings showed that none of these methods seem to be sustainable in the long run. Thus novel and innovative mechanisms that would allow our economy to reduce inequality are necessary and need to be put into place.

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FISCAL POLICY, INSTITUTIONS AND GROWTH: NEW INSIGHTS

The Singapore Economic Review ◽

10.1142/s0217590816500296 ◽

2016 ◽

Vol 64 (05) ◽

pp. 1251-1278

Author(s):

SAIMA NAWAZ ◽

M. IDREES KHAWAJA

Keyword(s):

Economic Growth ◽

Fiscal Policy ◽

Institutional Environment ◽

Developing Economies ◽

Negative Impact ◽

Positive Association ◽

Positive Role ◽

Full Sample ◽

Developed Economies ◽

The Impact

The paper attempts to analyze the impact of fiscal policy on economic growth while considering level of development and controlling for state of institutions. We extend the Solow growth model by incorporating fiscal policy and institutions through using total factor productivity. Our empirical analysis includes a panel of 56 countries. The empirics demonstrate that impact of fiscal policy on growth is statistically insignificant in the full sample. However, splitting the sample into developed and developing economies, positive association with economic growth in developed economies and negative association in developing economies observed. Our findings thus inform that fiscal policy contributes positively to growth only in developed economies. The reason for this seems to be an enabling institutional environment in developed economies. This kind of enabling institutional environment allows fiscal policy to play positive role in developed economies and absence of such environment contributes to the negative impact of fiscal policy in developing economies.

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Income Inequality and Economic Growth: Heterogeneity and Nonlinearity

Studies in Nonlinear Dynamics & Econometrics ◽

10.1515/snde-2018-0084 ◽

2019 ◽

Vol 24 (3) ◽

Cited By ~ 1

Author(s):

Abebe Hailemariam ◽

Ratbek Dzhumashev

Keyword(s):

Economic Growth ◽

Income Inequality ◽

Measurement Errors ◽

Developing Economies ◽

Threshold Effect ◽

Growth Effect ◽

Developed Economies ◽

Nonlinear Growth ◽

Cross Country ◽

The Relationship

AbstractThis paper examines the relationship between income inequality and economic growth in a broad panel of countries over the period from 1965 to 2014. We utilize an improved dataset for inequality with reduced measurement errors, which fosters cross-country comparability. In addition, we investigate whether accounting for heterogeneity across countries alters the estimated effect of inequality on growth, and whether the inequality-growth nexus varies with the level of income inequality. Our estimates show that after accounting for heterogeneity, the nonlinear growth effect of income inequality remains statistically and economically significant. We find a threshold effect of inequality on economic growth, and this threshold is higher for developing economies than for developed economies.

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Public Spending, Quality of Bureaucracy and Economic Growth: A Theoretical Analysis

The Pakistan Development Review ◽

10.30541/v58i2pp.203-221 ◽

2019 ◽

Vol 58 (2) ◽

pp. 203-221

Author(s):

Shaheen Naseer

Keyword(s):

Economic Growth ◽

Public Spending ◽

Rent Seeking ◽

Jel Classification ◽

Public Expenditures ◽

Potential Output ◽

Output Loss ◽

The Impact ◽

The Relationship

This paper develops a theoretical framework to investigate the relationship between public spending and economic growth, where public spending provides both productive capital and unproductive services. We take into account the quality of bureaucracy with the possibility of rent-seeking motives. A key feature of the model is that it distinguishes between utility enhancing and productivity enhancing public spending. In the absence of rent-seeking motives, the paper demonstrates that public spending will promote economic growth only if marginal productivity of spending is high enough to offset the potential output loss due to increased taxation. In the presence of rent-seeking, however, the impact of public spending on economic growth depends on the quality of bureaucracy and how the latter impinges upon the rentseeking behaviour. The analysis shows that while improvement in bureaucratic quality would unambiguously raise the share of utility enhancing public spending, its impact on economic growth would depend on how bureaucratic quality influences the relative magnitudes of the two types of public spending as well as on how far bureaucratic extraction will be controlled as a result of improvement in bureaucratic quality. Bureaucratic extraction is likely to be minimised with strong institutions and effective monitoring and accountability mechanisms thereby improving the prospects of economic growth. JEL Classification: C61, D23, D61, D73, H50 Keywords: Rent-seeking, Quality of Bureaucracy, Public Goods, Public Expenditures

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