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Public expenditure and growth in developing countries: education is the key

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  • Mohammad Haque
  • Niloy Bose
  • Denise R. Osborn

Abstract

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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  • Mohammad Haque & Niloy Bose & Denise R. Osborn, 2004. "Public expenditure and growth in developing countries: education is the key," Money Macro and Finance (MMF) Research Group Conference 2003 41, Money Macro and Finance Research Group.
  • Handle: RePEc:mmf:mmfc03:41
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    1. Timushev, Evgeny (Тимушев, Евгений), 2016. "Independence Decrease and Centralization: Analysis of Expenditures of the Consolidated Budget of the Komi Republic [Снижение Самостоятельности И Централизация: Анализ Расходов Консолидированного Бю," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 4, pages 131-152, August.
    2. Almanzar, Miguel & Torero, Maximo, 2017. "Distributional Effects of Growth and Public Expenditures in Africa: Estimates for Tanzania and Rwanda," World Development, Elsevier, vol. 95(C), pages 177-195.
    3. Michael Clemens, 2004. "The Long Walk to School: International Education Goals in Historical Perspective," Working Papers 37, Center for Global Development.
    4. Estache, A. & Gonzalez, M. & Trujillo, L., 2007. "Government expenditure on education, health and infrastructure: a naive look at levels, outcomes and efficiency," Working Papers 07/03, Department of Economics, City University London.

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    More about this item

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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