Testing Determinants of Growth in Heterogeneous Panel

The study investigates the relationship between economic growth, government size, private consumption, private investment, exports and imports, using data from ten Asian countries for the period 1970 to 2001. Country-by-country and panel results based on ADF, Johansen, Panel Unit Root (IPS), and Panel co-integration [Larsson et al. (2001) tests are presented. ADF and Panel Unit Root (IPS) test results show that all the series are integrated of order one. After establishing that the series are integrated of order one, the study then tested the long run implications of the model with the help of the Johansen Co-integration technique. A long run relationship among the variables using the panel co-integration test over the entire period for the sampled countries was detected. The study concluded that in the long-run government size is an important determinant of economic growth in Asian countries included in the sample. The findings also indicate that in countries like India, Indonesia, Malaysia and Philippines, an increase in the size of the government promotes the growth process, while in countries such as Bangladesh, Korea, Pakistan, Singapore, Sri Lanka and Thailand growth in the size of the government retards economic growth in the long run.