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

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  • Fan, Shenggen
  • Rao, Neetha

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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Bibliographic Info

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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References

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  1. 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.
  2. James Gwartney & Randal Holcombe & Robert Lawson, 1998. "The Scope of Government and the Wealth of Nations," Cato Journal, Cato Journal, Cato Institute, vol. 18(2), pages 163-190, Fall.
  3. 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.
  4. Pardey, Philip G. & Roseboom, Johannes & Beintema, Nienke M., 1995. "Investments in African agricultural research:," EPTD discussion papers 14, International Food Policy Research Institute (IFPRI).
  5. ElĂ­as, Victor Jorge, 1985. "Government expenditures on agriculture and agricultural growth in Latin America:," Research reports 50, International Food Policy Research Institute (IFPRI).
  6. 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.
  7. 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.
  8. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
  9. Shenggen Fan & Peter Hazell & Sukhadeo Thorat, 2000. "Government Spending, Growth and Poverty in Rural India," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(4), pages 1038-1051.
  10. 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.
  11. 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.
  12. Lindauer, David L & Velenchik, Ann D, 1992. "Government Spending in Developing Countries: Trends, Causes, and Consequences," World Bank Research Observer, World Bank Group, vol. 7(1), pages 59-78, January.
  13. 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).
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Citations

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Cited by:
  1. World Bank, 2010. "Bangladesh - Public Expenditure and Institutional Review : Towards a Better Quality of Public Expenditure - Main Report," World Bank Other Operational Studies 2875, The World Bank.
  2. Gabre-Madhin, Eleni Z. & Haggblade, Steven, 2004. "Successes in African Agriculture: Results of an Expert Survey," World Development, Elsevier, vol. 32(5), pages 745-766, May.
  3. Delfin Go & Denis Nikitin & Xiongjian Wang & Heng-fu Zou, 2007. "Poverty and Inequality in Sub-Saharan Africa: Literature Survey and Empirical Assessment," Annals of Economics and Finance, Society for AEF, vol. 8(2), pages 251-304, November.
  4. Allen, Summer L. & Badiane, Ousmane & Ulimwengu, John M., 2012. "Government expenditures, social outcomes, and marginal productivity of agricultural inputs: a case study for Tanzania," IFPRI discussion papers 1172, International Food Policy Research Institute (IFPRI).
  5. Benin, Samuel & Mogues, Tewodaj & Cudjoe, Godsway & Randriamamonjy, Josee, 2009. "Public expenditures and agricultural productivity growth in Ghana," 2009 Conference, August 16-22, 2009, Beijing, China 51634, International Association of Agricultural Economists.
  6. Haggblade, Steven, 2007. "Returns to Investment in Agriculture," Food Security Collaborative Policy Briefs 54625, Michigan State University, Department of Agricultural, Food, and Resource Economics.
  7. Zon, Adriaan van & Wiebe, Kirsten, 2010. "Efficient Development Portfolio Design for Sub Saharan Africa," MERIT Working Papers 050, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  8. World Bank, 2005. "Pakistan : Punjab Economic Report, Towards a Medium-Term Development Strategy," World Bank Other Operational Studies 8556, The World Bank.
  9. World Bank, 2012. "Niger : Investing for Prosperity - A Poverty Assessment," World Bank Other Operational Studies 12312, The World Bank.
  10. Fan, Shenggen & Nyange, David & Rao, Neetha, 2005. "Public investment and poverty reduction in Tanzania," DSGD discussion papers 18, International Food Policy Research Institute (IFPRI).
  11. Pradip K. Bhaumik & Arindam Banik, 2010. "Rigidities restraining movement of a rural artisan from poor to non-poor state: An empirical investigation of an Indian poverty reduction programme," International Journal of Social Economics, Emerald Group Publishing, vol. 37(1), pages 17-40, January.
  12. Crawford, Eric W. & Jayne, Thomas S. & Kelly, Valerie A., 2005. "Alternative Approaches for Promoting Fertilizer Use in Africa, with Particular Reference to the Role of Fertilizer Subsidies," Staff Papers 11557, Michigan State University, Department of Agricultural, Food, and Resource Economics.
  13. Nikopour, Hesam & Shah Habibullah, Muzafar, 2010. "Shadow Economy and Poverty," MPRA Paper 23599, University Library of Munich, Germany.
  14. Julian A. Lampietti & David G. Lugg & Philip Van der Celen & Amelia Branczik, 2009. "The Changing Face of Rural Space : Agriculture and Rural Development in the Western Balkans," World Bank Publications, The World Bank, number 13541, October.
  15. Abdulai, Awudu & Barrett, Christopher B. & Hazell, Peter, 2004. "Food aid for market development in Sub-Saharan Africa," DSGD discussion papers 5, International Food Policy Research Institute (IFPRI).
  16. Arindam Banik & Pradip K. Bhaumik, 2005. "Supporting the poor but skilled artisans by making assets available to them: an empirical investigation in rural India," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(1), pages 45-66.
  17. World Bank, 2010. "Budgeting for Effectiveness in Rwanda : From Reconstruction to Reform," World Bank Publications, The World Bank, number 5953, October.

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