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What do governments buy? The composition of public spending and economic performance

Author

Listed:
  • Devarajan, Shantayanan
  • Swaroop, Vinaya
  • Heng-fu Zou

Abstract

The authors develop a simple analytical framework that shows how the composition of public spending affects economic growth. Distinguishing between productive and unproductive government spending (that which complements private sector productivity and that which does not), they show that increasing the share of productive spending leads to a higher steady-state economic growth rate. They use data from 69 developing countries over 20 years to determine which components of public spending are productive. They find that an increase in the share of current spending has positive and statistically significant effects on growth. Otherwise, the news is mainly negative. The relationship between the capital component of public spending and per capita growth is negative. The same is true of the share of spending on transport and communications. The shares spent on health and education have no significant impact, although parts of those shares - the parts spent on preventative care and"other education"- do. The results raise the question whether public spending actually leads to a flow of public goods and services.

Suggested Citation

  • Devarajan, Shantayanan & Swaroop, Vinaya & Heng-fu Zou, 1993. "What do governments buy? The composition of public spending and economic performance," Policy Research Working Paper Series 1082, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1082
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    References listed on IDEAS

    as
    1. Barro, Robert J, 1981. "Output Effects of Government Purchases," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1086-1121, December.
    2. William Easterly, 1989. "Policy Distortions, Size of Government, and Growth," NBER Working Papers 3214, National Bureau of Economic Research, Inc.
    3. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-963, September.
    4. Morrison, Catherine J & Schwartz, Amy Ellen, 1996. "State Infrastructure and Productive Performance," American Economic Review, American Economic Association, vol. 86(5), pages 1095-1111, December.
    5. Aschauer, David Alan & Greenwood, Jeremy, 1985. "Macroeconomic effects of fiscal policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 23(1), pages 91-138, January.
    6. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 141-163, September.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Pillai N., Vijayamohanan, 2008. "Infrastructure, Growth And Human Development In Kerala," MPRA Paper 7017, University Library of Munich, Germany.
    2. M. Alejandro Cardenete & M. Carmen Lima & Ferran Sancho, 2013. "Are There Key Sectors? An Appraisal Using Applied General Equilibrium," The Review of Regional Studies, Southern Regional Science Association, vol. 43(2,3), pages 111-129, Winter.
    3. Torres Preciado, Víctor Hugo & Polanco Gaytán, Mayrén & Manzanares Rivera, José Luis, 2010. "Diferencias en el ingreso per cápita regional e infraestructura de transporte en México
      [Differences in per capita regional income and transport infrastructure in Mexico]
      ," MPRA Paper 28081, University Library of Munich, Germany.
    4. Devarajan, Shantayanan & Danyang, Xie & Zou, Heng-fu, 1998. "Should public capital be subsidized or provided?," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 319-331, April.
    5. Hany Abdel-Latif & Tapas Mishra, 2016. "Asymmetric Growth Impact of Social Policy: A Post-Shock Policy Scenario for Egypt," Working Papers 1035, Economic Research Forum, revised Aug 2016.
    6. Armas, Enrique Blanco & Osorio, Camilo Gomez & Moreno-Dodson, Blanca & Abriningrum, Dwi Endah, 2012. "Agriculture public spending and growth in Indonesia," Policy Research Working Paper Series 5977, The World Bank.
    7. Michel Strawczynski & Momi Dahan, 1996. "Government finance and endogenous growth," Applied Economics Letters, Taylor & Francis Journals, vol. 3(12), pages 789-791.

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