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Heterogeneity in the effects of government size and governance on economic growth

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  • Kim, Dong-Hyeon
  • Wu, Yi-Chen
  • Lin, Shu-Chin

Abstract

This paper explores whether there exist nonlinear threshold effects of government size and governance on output growth and whether the effect is mainly mediated through the productivity growth channel. Using the panel smooth transition regression (PSTR) approach to a sample of developed and developing countries, it finds that (i) better governance helps government size increase productivity and hence output growth, and bigger government size helps governance raise productivity and then output growth; (ii) government size turns harmful to growth above some threshold level of government size; (iii) governance becomes beneficial to growth above some threshold level of governance; and (iv) the evidence is more pronounced in countries with abundant natural resources. The findings are robust and provide circumstantial support for government size and governance to promote economic growth.

Suggested Citation

  • Kim, Dong-Hyeon & Wu, Yi-Chen & Lin, Shu-Chin, 2018. "Heterogeneity in the effects of government size and governance on economic growth," Economic Modelling, Elsevier, vol. 68(C), pages 205-216.
  • Handle: RePEc:eee:ecmode:v:68:y:2018:i:c:p:205-216
    DOI: 10.1016/j.econmod.2017.07.014
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    Cited by:

    1. Khatai Aliyev & Altay Ismayilov & Ilkin Gasimov, 2019. "Modelling Elasticity of Non‑Oil Tax Revenues to Oil Price Changes: is There U‑Shaped Association? Evidence from Azerbaijan," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 67(3), pages 799-810.
    2. Akram, Vaseem & Rath, Badri Narayan, 2020. "Optimum government size and economic growth in case of Indian states: Evidence from panel threshold model," Economic Modelling, Elsevier, vol. 88(C), pages 151-162.
    3. Jun Wen & Mingbo Zheng & Gen-Fu Feng & Sunwu Winfred Chen & Chun-Ping Chang, 2018. "Corruption And Innovation: Linear And Nonlinear Investigations Of Oecd Countries," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(01), pages 103-129, July.

    More about this item

    Keywords

    Economic growth; productivity growth; government size; governance;

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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