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Government size and unemployment in developing countries

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  • Horst Feldmann

Abstract

Using data from 52 developing countries, this article analyses how the size of government affects unemployment. It tackles the reverse causality issue by instrumenting for the government size variable. According to the regression results, a large government sector is likely to increase the unemployment rate. The magnitude of the effect appears to be substantial, both among the total labour force as well as among women and young people. Furthermore, the estimates indicate that a large government sector is likely to substantially increase the share of long-term unemployed in the total number of unemployed. The results are robust to variations in specification.

Suggested Citation

  • Horst Feldmann, 2010. "Government size and unemployment in developing countries," Applied Economics Letters, Taylor & Francis Journals, vol. 17(3), pages 289-292, February.
    • Handle: RePEc:taf:apeclt:v:17:y:2010:i:3:p:289-292
    DOI: 10.1080/13504850701720221
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    References listed on IDEAS

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    1. Dimitris Christopoulos & John Loizides & Efthymios Tsionas, 2005. "The Abrams curve of government size and unemployment: evidence from panel data," Applied Economics, Taylor & Francis Journals, vol. 37(10), pages 1193-1199.
    2. Horst Feldmann, 2006. "Government Size and Unemployment: Evidence from Industrial Countries," Public Choice, Springer, vol. 127(3), pages 443-459, June.
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    Cited by:

    1. Axel Dreher & Peter Nunnenkamp & Rainer Thiele, 2008. "Does Aid for Education Educate Children? Evidence from Panel Data," The World Bank Economic Review, World Bank, vol. 22(2), pages 291-314, April.
    2. Antonio Afonso & Hüseyin Sen & Ayse Kaya, 2021. "Government Size, Unemployment and Inflation Nexus in Eight Large Emerging Market Economies," Hacienda Pública Española / Review of Public Economics, IEF, vol. 235(1), pages 133-170, March.
    3. Altan Aldan, 2021. "The multiplier effect of public employment on formal employment in the private sector: Evidence from Turkey," Review of Development Economics, Wiley Blackwell, vol. 25(2), pages 1016-1031, May.
    4. Ahmet AYSU & Gökhan DÖKMEN, 2011. "An Investigation on the Relationship between Government Size and Unemployment Rate: Evidence from OECD Countries," Sosyoekonomi Journal, Sosyoekonomi Society, issue 16(16).
    5. Alberto Behar & Junghwan Mok, 2019. "Does public‐sector employment fully crowd out private‐sector employment?," Review of Development Economics, Wiley Blackwell, vol. 23(4), pages 1891-1925, November.
    6. Falguni Pattanaik & Narayan Chandra Nayak, 2013. "Economic Freedom and Employment in India," South Asian Journal of Macroeconomics and Public Finance, , vol. 2(1), pages 59-79, June.
    7. Hüseyin Şen & Ayşe Kaya & Ayşegül Durucan, 2023. "New insights into the growth-maximizing size of government: evidence and implications for Turkey," Economic Change and Restructuring, Springer, vol. 56(4), pages 2243-2296, August.
    8. Lauren R. Heller & E. Frank Stephenson, 2014. "Economic Freedom And Labor Market Conditions: Evidence From The States," Contemporary Economic Policy, Western Economic Association International, vol. 32(1), pages 56-66, January.
    9. Rene Cabral Torres, 2012. "Capital and Labor Mobility and the Size of Sub-national Governments: Evidence from a Panel of Mexican States," CID Working Papers 231, Center for International Development at Harvard University.
    10. Orkun ÇELIK & Elif ERER, 2021. "The Role of Gender in the Government Expenditure and Unemployment Nexus: An Investigation at Regional Level for Turkey," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 112-128, June.
    11. Marwa Sahnoun & Chokri Abdennadher, 2018. "The assessment of active labor market policies: evidence from OECD countries," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 35(2), pages 257-283, August.
    12. Burcu Yuruk & Hakan Acaroglu, 2021. "An Asymmetric Causality Analysis of the Relationship between Government Expenditure and Unemployment in Turkey," Journal of Economy Culture and Society, Istanbul University, Faculty of Economics, vol. 63(63), pages 93-110, June.

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