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Public Expenditure and Growth in Developing Countries: Education is the Key

  • N Bose
  • M E Haque
  • D R Osborn

This paper examines the growth effects of government expenditure for a panel of thirty developing countries over the decades of the 1970s and 1980s, with a particular focus on sectoral expenditures. Our methodology improves on previous research on this topic by explicitly recognising the role of the government budget constraint and the possible biases arising from omitted variables. Our primary results are twofold. Firstly, the share of government capital expenditure in GDP is positively and significantly correlated with economic growth, but current expenditure is insignificant. Secondly, at the sectoral level, government investment and total expenditures in education are the only outlays that are significantly associated with growth once the budget constraint and omitted variables are taken into consideration. Therefore, we conclude that education is the key to growth for developing countries.

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File URL: http://hummedia.manchester.ac.uk/schools/soss/cgbcr/discussionpapers/dpcgbcr30.pdf
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Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 30.

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Length: 27 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:man:cgbcrp:30
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Web page: http://www.socialsciences.manchester.ac.uk/subjects/economics/our-research/centre-for-growth-and-business-cycle-research/

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  18. 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 235-62, May.
  19. Helms, L Jay, 1985. "The Effect of State and Local Taxes on Economic Growth: A Time Series-Cross Section Approach," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 574-82, November.
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