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Public spending in developing countries: trends, determination, and impact

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Author Info
Fan, Shenggen
Rao, Neetha

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Abstract

The objective of this paper is to review trends in government expenditures in the developing world, to analyze the causes of change, and to develop an analytical framework for determining the differential impacts of various government expenditures on economic growth. Contrary to common belief, it is found that structural adjustment programs increased the size of government spending, but not all sectors received equal treatment. As a share of total government spending, expenditures on agriculture, education, and infrastructure in Africa; on agricultural and health in Asia; and on education and infrastructure in Latin America, all declined as a result of the structural adjustment programs. The impact of various types of government spending on economic growth is mixed. In Africa, government spending on agriculture and health was particularly strong in promoting economic growth. Asia's investments in agriculture, education, and defense had positive growth-promoting effects. However, all types of government spending except health were statistically insignificant in Latin America. Structural adjustment programs promoted growth in Asia and Latin America, but not in Africa. Growth in agricultural production is most crucial for poverty alleviation in rural areas. Agricultural spending, irrigation, education, and roads all contributed strongly to this growth. Disaggregating total agricultural expenditures into research and non-research spending reveals that research had a much larger impact on productivity than non-research spending.

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Paper provided by International Food Policy Research Institute (IFPRI) in its series EPTD discussion papers with number 99.

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Date of creation: 2003
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Handle: RePEc:fpr:eptddp:99

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Keywords: Poverty alleviation; Government spending policy; Structural adjustment (Economic policy);

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  1. Pardey, Philip G. & Roseboom, Johannes & Beintema, Nienke M., 1997. "Investments in african agricultural research," World Development, Elsevier, vol. 25(3), pages 409-423, March. [Downloadable!] (restricted)
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  2. Pardey, Philip G. & Beintema, Nienke M., 2002. "Slow Magic: Agricultural R&D A Century After Mendel," Working Papers 14364, University of Minnesota, Center for International Food and Agricultural Policy. [Downloadable!]
  3. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March. [Downloadable!] (restricted)
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  4. Jonakin, Jon & Stephens, Mark, 1999. "The impact of adjustment and stabilization policies on infrastructure spending in Central America," The North American Journal of Economics and Finance, Elsevier, vol. 10(1), pages 293-308. [Downloadable!] (restricted)
  5. Rao, M. Govinda, 1998. "Accommodating public expenditure policies: the case of fast growing Asian economies," World Development, Elsevier, vol. 26(4), pages 673-694, April. [Downloadable!] (restricted)
  6. Fan, Shenggen & Zhang, Linxiu & Zhang, Xiaobo, 2000. "Growth and poverty in rural China: the role of public investments," EPTD discussion papers 66, International Food Policy Research Institute (IFPRI). [Downloadable!]
  7. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October. [Downloadable!] (restricted)
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  8. Knight, Malcolm & Loayza, Norman & Villanueva, Delano, 1996. "The peace dividend : military spending cuts and economic growth," Policy Research Working Paper Series 1577, The World Bank. [Downloadable!]
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  9. Elías, Victor Jorge, 1985. "Government expenditures on agriculture and agricultural growth in Latin America:," Research reports 50, International Food Policy Research Institute (IFPRI). [Downloadable!]
  10. Fan, Shenngen & Hazell, Peter & Haque, T., 2000. "Targeting public investments by agro-ecological zone to achieve growth and poverty alleviation goals in rural India," Food Policy, Elsevier, vol. 25(4), pages 411-428, August. [Downloadable!] (restricted)
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