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Assessing the impact of public spending on growth - an empirical analysis for seven fast growing countries

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  • Moreno-Dodson, Blanca
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    Abstract

    The goal of this paper is to understand better, at the empirical level, how public spending contributes to growth by focusing on both the level and composition of public spending, in connection to the dynamics of GDP per capita growth. It attempts to answer two specific questions: (a) What are the policy conditions under which public spending contributes positively to growth? and (b) What are the public spending components that have a stronger and longer-lasting impact on growth? The analysis is applied to a sample of seven fast-growing developing countries: Korea, Singapore, Malaysia, Thailand, Indonesia, Botswana, and Mauritius, which have been among the top performers in the world in terms of GDP per capita growth during the period (1960-2006). The rationale for this country sample selection is twofold. The first hypothesis is that, given their positive growth achievements over a relatively long time period, perhaps it is more straightforward to establish a link to public spending in those countries. Second, it is expected that the findings of the analysis will provide lessons regarding the level and composition of public spending that can be useful for other countries where growth has been less rapid. Assessing what role public spending has played in a dynamic growth context may indeed be enlightening for other cases as well. The paper is structured as follows. The first section is an introduction that provides relevant facts and information about the seven countries during the period of analysis, based on seven individual country case studies. Section II presents the theoretical background behind the empirical analysis. Section III focuses on the empirical methodology, function specification, and variables selected. Section IV is dedicated tothe results obtained with the cross-country analysis and some specific country results, as well as some comparisons with previous findings by other authors. Finally, Section V draws policy implications and concludes.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4663.

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    Date of creation: 01 Jul 2008
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    Handle: RePEc:wbk:wbrwps:4663

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    Related research

    Keywords: Public Sector Expenditure Analysis&Management; Public Sector Economics&Finance; Debt Markets; Achieving Shared Growth;

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    References

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    1. Martin Zagler & Georg Dürnecker, 2003. "Fiscal Policy and Economic Growth," Journal of Economic Surveys, Wiley Blackwell, vol. 17(3), pages 397-418, 07.
    2. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
    3. Pierre-Richard Agénor, 2008. "Fiscal policy and endogenous growth with public infrastructure," Oxford Economic Papers, Oxford University Press, vol. 60(1), pages 57-87, January.
    4. Pierre‐Richard Agénor & Kyriakos C. Neanidis, 2011. "The Allocation Of Public Expenditure And Economic Growth," Manchester School, University of Manchester, vol. 79(4), pages 899-931, 07.
    5. Gernot Doppelhofer & Ronald I. Miller & Xavier Sala-i-Martin, 2000. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (Bace) Approach," OECD Economics Department Working Papers 266, OECD Publishing.
    6. Pierre Richard Agénor & Devrim Yilmaz, 2006. "The Tyranny of Rules: Fiscal Discipline, Productive Spending, and Growth," The School of Economics Discussion Paper Series 0616, Economics, The University of Manchester.
    7. Michael Bleaney & Norman Gemmell & Richard Kneller, 2001. "Testing the endogenous growth model: public expenditure, taxation, and growth over the long run," Canadian Journal of Economics, Canadian Economics Association, vol. 34(1), pages 36-57, February.
    8. Pritchett, Lant, 2000. "The tyranny of concepts - CUDIE (Cumulated, Depreciated Investment Effort) is NOT capital," Policy Research Working Paper Series 2341, The World Bank.
    9. Niloy Bose & M. Emranul Haque & Denise R. Osborn, 2007. "Public Expenditure And Economic Growth: A Disaggregated Analysis For Developing Countries," Manchester School, University of Manchester, vol. 75(5), pages 533-556, 09.
    10. Rajkumar, Andrew Sunil & Swaroop, Vinaya, 2008. "Public spending and outcomes: Does governance matter?," Journal of Development Economics, Elsevier, vol. 86(1), pages 96-111, April.
    11. Blanchard, Olivier J & Giavazzi, Francesco, 2004. "Improving the SGP Through a Proper Accounting of Public Investment," CEPR Discussion Papers 4220, C.E.P.R. Discussion Papers.
    12. Agenor, Pierre-Richard & Moreno-Dodson, Blanca, 2006. "Public infrastructure and growth : new channels and policy implications," Policy Research Working Paper Series 4064, The World Bank.
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    Cited by:
    1. Emmanuel Pinto Moreira, 2009. "Linking Fiscal Policy and Growth in PER Reports : An Operational Framework for Low-Income Countries," World Bank Other Operational Studies 11125, The World Bank.
    2. Blanca Moreno-Dodson & Nihal Bayraktar, 2011. "How Public Spending Can Help You Grow : An Empirical Analysis for Developing Countries," World Bank Other Operational Studies 10107, The World Bank.

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