The Role of Government Activities in Explaining the Growth Failure of the Oil Exporting Countries

Most of the growth empirics emphasize the ambiguous impact of government activities on economic growth. The provision of public goods and development of infrastructures, on the one hand, stimulate economic activities. But on the other, the contractionary effect of tax collection, through lowering the saving rate and investment, depresses economic growth. In the standard growth models such as Barro (1990), government size is related to economic growth within an inverted "U" curve framework. The government involvement in the economy, however, is not restricted to budgetary activities. Governments own enterprises and they also intervene into different markets. This is specifically the case in developing countries. In assessing the impacts of government activities on economic growth, we need to take into account each role played by the government separately. In this paper, we have examined the significance of government activities for the economic growth of the oil exporting countries, through three channels of: government expenditure, ownership of enterprises, and intervention in the economy. The results indicate that the distortionary impact of government intervention, in addition to a government size much bigger than its optimal, contribute significantly to the observed phenomena, known as the growth failure of the oil exporting countries.