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Government Spending And Economic Growth Relationship: Can A Better Institutional Quality Fix The Outcomes?

Author

Listed:
  • MUHAMMAD KHAN

    (Department of Social Sciences, IQRA University, H-9 Islamabad, Pakistan†University of Economics Ho Chi Minh City, 59C Nguyen Dinh Chieu Street, District 3, HCMC, Vietnam)

  • SAQLAIN RAZA

    (��COMSATS University, Islamabad, Pakistan)

  • XUAN VINH VO

    (��University of Economics Ho Chi Minh City, 59C Nguyen Dinh Chieu Street, District 3, HCMC, Vietnam§Institute of Business Research and CFVG Ho Chi Minh City, University of Economics Ho Chi Minh City, Vietnam)

Abstract

Empirical growth literature finds conflicting results on the relationship between public spending and long-run economic growth. This paper shows that the nature of relationship between the two variables depends upon the institutional quality of a country. Our empirical investigation relies upon OLS, fixed-effects and system-GMM estimators for a large panel of 113 developed and developing economies during the period 1981–2015. The main findings confirm that the adverse impact of public size on output growth holds only for countries with poor institutional quality. By contrast, when the institutional quality exceeds certain thresholds, the growth inhibiting effects of government size become insignificant. From the fiscal policy viewpoint, these outcomes imply that the productivity of public spending is more important than an excessively large public size of the country.

Suggested Citation

  • Muhammad Khan & Saqlain Raza & Xuan Vinh Vo, 2024. "Government Spending And Economic Growth Relationship: Can A Better Institutional Quality Fix The Outcomes?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 69(01), pages 227-249, March.
    • Handle: RePEc:wsi:serxxx:v:69:y:2024:i:01:n:s0217590820500216
    DOI: 10.1142/S0217590820500216
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    Keywords

    Government size; institutions; economic growth;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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