IDEAS home Printed from https://ideas.repec.org/a/vrs/bjrecm/v6y2018i1p74-87n6.html
   My bibliography  Save this article

Role of Public Expenditure in Economic Growth: Econometric Evidence from Kosovo 2002–2015

Author

Listed:
  • Pula Lekë

    (University of Prishtina, Prishtina, Kosovo)

  • Elshani Alban

    (University of Prishtina, Prishtina, Kosovo)

Abstract

The aim of the study is to examine the impact of public expenditure on economic growth of Kosovo. Time series data span for the period of time 2002-2015. The structure of the econometric model is built on Keynesian theories and endogenous growth model. The model estimation is performed only after implementing the Augmented Dickey-Fuller (ADF) Unit Root test to estimate if time series are stationary. Several tests have been implemented to determine model validity. The model has met all the assumptions of statistical tests: error term residuals have a normal distribution (Jarque-Bera test), there is no auto-correlation between variables (Breusch-Godfrey Serial test), and error variances are constant, known as the principle of homoscedasticity (Breusch-Pagan-Godfrey test). Gross domestic product is used as a dependent variable in the model, while public expenditure (G), foreign direct investment (FDI), export (EXP) and total budget revenue (TrTax) are used as the endogenous variables. The study results have revealed that there is a positive and statistically significant effect of public expenditures and exports on economic growth. Total budget revenue has a positive impact on economic growth but this has not been proved to be statistically significant. The authors of the research have also found out that FDI is negative and statistically insignificant.

Suggested Citation

  • Pula Lekë & Elshani Alban, 2018. "Role of Public Expenditure in Economic Growth: Econometric Evidence from Kosovo 2002–2015," Baltic Journal of Real Estate Economics and Construction Management, Sciendo, vol. 6(1), pages 74-87, June.
  • Handle: RePEc:vrs:bjrecm:v:6:y:2018:i:1:p:74-87:n:6
    DOI: 10.2478/bjreecm-2018-0006
    as

    Download full text from publisher

    File URL: https://doi.org/10.2478/bjreecm-2018-0006
    Download Restriction: no

    File URL: https://libkey.io/10.2478/bjreecm-2018-0006?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Hindriks, Jean & Myles, Gareth D., 2013. "Intermediate Public Economics," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262018691.
    3. Bachmann, Rüdiger & Sims, Eric R., 2012. "Confidence and the transmission of government spending shocks," Journal of Monetary Economics, Elsevier, vol. 59(3), pages 235-249.
    4. Devarajan, Shantayanan & Swaroop, Vinaya & Heng-fu, Zou, 1996. "The composition of public expenditure and economic growth," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 313-344, April.
    5. Eric M. Engen & Jonathan Skinner, 1992. "Fiscal Policy and Economic Growth," NBER Working Papers 4223, National Bureau of Economic Research, Inc.
    6. Sugata Ghosh & Andros Gregoriou, 2008. "The composition of government spending and growth: is current or capital spending better?," Oxford Economic Papers, Oxford University Press, vol. 60(3), pages 484-516, July.
    7. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
    8. Michael Marlow, 1986. "Private sector shrinkage and the growth of industrialized economies," Public Choice, Springer, vol. 49(2), pages 143-154, January.
    9. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
    10. Kormendi, Roger C, 1983. "Government Debt, Government Spending, and Private Sector Behavior," American Economic Review, American Economic Association, vol. 73(5), pages 994-1010, December.
    11. Andreas Bergh & Magnus Henrekson, 2011. "Government Size And Growth: A Survey And Interpretation Of The Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 25(5), pages 872-897, December.
    12. Grier, Kevin B. & Tullock, Gordon, 1989. "An empirical analysis of cross-national economic growth, 1951-1980," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 259-276, September.
    13. Robert J. Barro & Xavier Sala-I-Martin, 1992. "Public Finance in Models of Economic Growth," Review of Economic Studies, Oxford University Press, vol. 59(4), pages 645-661.
    14. Angelopoulos, Konstantinos & Economides, George & Kammas, Pantelis, 2007. "Tax-spending policies and economic growth: Theoretical predictions and evidence from the OECD," European Journal of Political Economy, Elsevier, vol. 23(4), pages 885-902, December.
    15. Nigar Hashimzade & Jean Hindriks & Gareth D. Myles, 2006. "Solutions Manual to Accompany Intermediate Public Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582694.
    16. Folster, Stefan & Henrekson, Magnus, 1999. "Growth and the public sector: a critique of the critics," European Journal of Political Economy, Elsevier, vol. 15(2), pages 337-358, June.
    17. 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 103-126, October.
    18. Mendoza, Enrique G. & Milesi-Ferretti, Gian Maria & Asea, Patrick, 1997. "On the ineffectiveness of tax policy in altering long-run growth: Harberger's superneutrality conjecture," Journal of Public Economics, Elsevier, vol. 66(1), pages 99-126, October.
    19. Mr. Vito Tanzi, 1997. "The Changing Role of the State in the Economy: A Historical Perspective," IMF Working Papers 1997/114, International Monetary Fund.
    20. Afonso, António & Furceri, Davide, 2010. "Government size, composition, volatility and economic growth," European Journal of Political Economy, Elsevier, vol. 26(4), pages 517-532, December.
    21. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
    22. Joel Slemrod, 1995. "What Do Cross-Country Studies Teach about Government Involvement, Prosperity, and Economic Growth?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 373-431.
    23. Tamoya Christie, 2014. "The Effect Of Government Spending On Economic Growth: Testing The Non-Linear Hypothesis," Bulletin of Economic Research, Wiley Blackwell, vol. 66(2), pages 183-204, April.
    24. Nizalov, Denys & Loveridge, Scott, 2005. "Regional Policies and Economic Growth: One Size Does Not Fit All," The Review of Regional Studies, Southern Regional Science Association, vol. 35(3), pages 266-290.
    25. David Alan Aschauer, 1990. "Is Government Spending Stimulative?," Contemporary Economic Policy, Western Economic Association International, vol. 8(4), pages 30-46, October.
    26. Dar, Atul A. & AmirKhalkhali, Sal, 2002. "Government size, factor accumulation, and economic growth: evidence from OECD countries," Journal of Policy Modeling, Elsevier, vol. 24(7-8), pages 679-692, November.
    27. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
    28. Ram, Rati, 1986. "Government Size and Economic Growth: A New Framework and Some Evidencefrom Cross-Section and Time-Series Data," American Economic Review, American Economic Association, vol. 76(1), pages 191-203, March.
    29. Nizalov, Denys & Loveridge, Scott, 2005. "The Differential Impact of Regional Policies on Economic Growth: One Size Does Not Fit All," 2005 Annual meeting, July 24-27, Providence, RI 19360, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    30. Sinha, Dipendra, 1998. "Economic growth and government expenditure in China," MPRA Paper 18347, University Library of Munich, Germany.
    31. Kocherlakota, Narayana R & Yi, Kei-Mu, 1997. "Is There Endogenous Long-Run Growth? Evidence from the United States and the United Kingdom," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 235-262, May.
    32. Conte, Michael A & Darrat, Ali F, 1988. "Economic Growth and the Expanding Public Sector: A Reexamination," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 322-330, May.
    33. Chen, Sheng-Tung & Lee, Chien-Chiang, 2005. "Government size and economic growth in Taiwan: A threshold regression approach," Journal of Policy Modeling, Elsevier, vol. 27(9), pages 1051-1066, December.
    34. Kaas, Leo, 2003. "Productive government spending, growth, and sequential voting," European Journal of Political Economy, Elsevier, vol. 19(2), pages 227-246, June.
    35. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sefa Awaworyi Churchill & Mehmet Ugur & Siew Ling Yew, 2017. "Does Government Size Affect Per-Capita Income Growth? A Hierarchical Meta-Regression Analysis," The Economic Record, The Economic Society of Australia, vol. 93(300), pages 142-171, March.
    2. Hajamini, Mehdi & Falahi, Mohammad Ali, 2018. "Economic growth and government size in developed European countries: A panel threshold approach," Economic Analysis and Policy, Elsevier, vol. 58(C), pages 1-13.
    3. Facchini, François & Melki, Mickaël, 2013. "Efficient government size: France in the 20th century," European Journal of Political Economy, Elsevier, vol. 31(C), pages 1-14.
    4. Herath, Shanaka, 2009. "The Size of the Government and Economic Growth. An Empirical Study of Sri Lanka," SRE-Discussion Papers 2009/08, WU Vienna University of Economics and Business.
    5. Dimitrios Paparas & Christian Richter, 2015. "Fiscal policy and economic growth: Empirical evidence from the European Union," Working Papers 2015.06, International Network for Economic Research - INFER.
    6. Amal MATALLAH & Amal MATALLAH, 2017. "Does fiscal policy spur economic growth? Empirical evidence from Algeria," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(612), A), pages 125-146, Autumn.
    7. Ho Thuy Ai & Ping, Lin, 2018. "Impacts of fiscal policy on economic growth: Another look from institutional perspective," Economics Discussion Papers 2018-45, Kiel Institute for the World Economy (IfW).
    8. ZAREEN, SHUMAILA & Qayyum, Abdul, 2014. "An Analysis of the Impact of Government Size on Economic Growth of Pakistan: An Endogenous Growth," MPRA Paper 85426, University Library of Munich, Germany, revised 2015.
    9. Norman Gemmell, 2001. "Fiscal Policy in a Growth Framework," WIDER Working Paper Series DP2001-84, World Institute for Development Economic Research (UNU-WIDER).
    10. Halkos, George & Paizanos, Epameinondas, 2015. "Fiscal policy and economic performance: A review of the theoretical and empirical literature," MPRA Paper 67737, University Library of Munich, Germany.
    11. L. Di Matteo & Tom Barbiero, 2017. "Economic Growth and the Public Sector: A Comparison of Canada and Italy, 1870†2013," Working Papers 069, Ryerson University, Department of Economics.
    12. Hammed Adetola Adefeso, 2016. "Productive Government Expenditure and Economic Performance in sub-Saharan Africa: An Empirical Investigation," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 19(2), pages 1-18, November.
    13. 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.
    14. Ibrar Hussain & Zahoor Khan & Muhmmad Rafiq, 2017. "Compositional Changes in Public Expenditure and Economic Growth: Time Series Evidence from Pakistan," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 9(1), pages 1-20, March.
    15. Turnovsky, S., 2000. "Growth in an Open Economy: some Recent Developments," Papers 5, Warwick - Development Economics Research Centre.
    16. Peter Nijkamp & Jacques Poot, Victoria, 2002. "Meta-Analysis of the Impact of Fiscal Policies on Long-Run Growth," Tinbergen Institute Discussion Papers 02-028/3, Tinbergen Institute, revised 23 Apr 2003.
    17. Andreas Bergh & Magnus Henrekson, 2011. "Government Size And Growth: A Survey And Interpretation Of The Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 25(5), pages 872-897, December.
    18. Agell, Jonas & Lindh, Thomas & Ohlsson, Henry, 1997. "Growth and the public sector: A critical review essay," European Journal of Political Economy, Elsevier, vol. 13(1), pages 33-52, February.
    19. Shanaka Herath, 2012. "Size Of Government And Economic Growth: A Nonlinear Analysis," Economic Annals, Faculty of Economics, University of Belgrade, vol. 57(194), pages 7-30, July - Se.
    20. Åsa Johansson, 2016. "Public Finance, Economic Growth and Inequality: A Survey of the Evidence," OECD Economics Department Working Papers 1346, OECD Publishing.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:vrs:bjrecm:v:6:y:2018:i:1:p:74-87:n:6. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://www.sciendo.com/services/journals .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.sciendo.com/services/journals .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.