IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/1082.html
   My bibliography  Save this paper

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
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/1993/02/01/000009265_3961004044431/Rendered/PDF/multi_page.pdf
    Download Restriction: no
    ---><---

    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. 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.
    3. Joel Fried, 1985. "The Behavior of Forward Premiums on U.S. Treasury Bills," University of Western Ontario, Departmental Research Report Series 8511, University of Western Ontario, Department of Economics.
    4. Easterly, William R., 1989. "Policy distortions, size of government, and growth," Policy Research Working Paper Series 344, The World Bank.
    5. 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.
    6. 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.
    7. 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

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pillai N., Vijayamohanan, 2008. "Infrastructure, Growth And Human Development In Kerala," MPRA Paper 7017, University Library of Munich, Germany.
    2. Jorge Martínez-Vázquez & Violeta Vulovic & Blanca Moreno Dodson, 2012. "The Impact of Tax and Expenditure Policies on Income Distribution: Evidence from a Large Panel of Countries," Hacienda Pública Española / Review of Public Economics, IEF, vol. 200(1), pages 95-130, March.
    3. Manuel Alejandro Cardenete & Ferran Sancho, 2012. "The Role Of Supply Constraints In Multiplier Analysis," Economic Systems Research, Taylor & Francis Journals, vol. 24(1), pages 21-34, June.
    4. 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.
    5. Shanaka Herath, 2009. "The Size of the Government and Economic Growth: An Empirical Study of Sri Lanka," SRE-Disc sre-disc-2009_08, Institute for Multilevel Governance and Development, Department of Socioeconomics, Vienna University of Economics and Business.
    6. Angel De la Fuente, 2010. "Infrastructures and productivity: an updated survey," Working Papers 1018, BBVA Bank, Economic Research Department.
    7. 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.
    8. 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.
    9. Pushpa Trivedi & Rajmal, 2011. "Growth Effects of Fiscal Policy of India States," Millennial Asia, , vol. 2(2), pages 141-162, July.
    10. Sayantan Ghosh Dastidar & Sushil Mohan & Monojit Chatterji, 2012. "The relationship between public education expenditure and economic growth: The case of India," Dundee Discussion Papers in Economics 273, Economic Studies, University of Dundee.
    11. 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.
    12. Moreno-Dodson, Blanca, 2008. "Assessing the impact of public spending on growth - an empirical analysis for seven fast growing countries," Policy Research Working Paper Series 4663, The World Bank.
    13. 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.
    14. Michel Strawczynski & Momi Dahan, 1996. "Government finance and endogenous growth," Applied Economics Letters, Taylor & Francis Journals, vol. 3(12), pages 789-791.
    15. Shanaka Herath, 2012. "Size Of Government And Economic Growth: A Nonlinear Analysis," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 57(194), pages 7-30, July - Se.

    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. Shantayanan Devarajan & Vinaya Swaroop & Heng-fu Zou, 1993. "What do governments buy?," CEMA Working Papers 513, China Economics and Management Academy, Central University of Finance and Economics.
    2. 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.
    3. Sharon J. Erenburg, "undated". "Linking Public Capital to Economic Performance, Public Capital: The Missing Link Between Investment and Economic Growth ," Economics Public Policy Brief Archive 14, Levy Economics Institute.
    4. Korhan Gokmenoglu, 2013. "Re-Examination Of Wagner’S Law For Oecd Countries," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 1, pages 28-37, February.
    5. Poot, Jacques, 1999. "A meta-analytic study of the role of government in long-run economic growth," ERSA conference papers ersa99pa171, European Regional Science Association.
    6. World Bank, 2009. "Seychelles - Public Expenditure Review," World Bank Publications - Reports 3089, The World Bank Group.
    7. Minea, Alexandru, 2008. "The Role of Public Spending in the Growth Theory Evolution," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 5(2), pages 99-120, June.
    8. 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.
    9. S Tharshan & W L M A Liyanage & P G K Nilanka & E A Selvanathan & M Jayasinghe and S Selvanathan, 2019. "The Impact of Sectoral Government Expenditure on Economic Growth: Evidence from Sri Lanka," Discussion Papers in Economics economics:201902, Griffith University, Department of Accounting, Finance and Economics.
    10. Sharon J. Erenburg, 1993. "The Relationship Between Public and Private Investment," Economics Working Paper Archive wp_85, Levy Economics Institute.
    11. Barry, Frank, 1999. "Government Consumption and Private Investment in Closed and Open Economies," Journal of Macroeconomics, Elsevier, vol. 21(1), pages 93-106, January.
    12. Nijkamp, Peter & Poot, Jacques, 2004. "Meta-analysis of the effect of fiscal policies on long-run growth," European Journal of Political Economy, Elsevier, vol. 20(1), pages 91-124, March.
    13. Ghali, Khalifa H. & Trabelsi, Hédi, 2006. "Capital Ownership And Its Impact On International Trade And Economic Growth: The Tunisian Experience," MPRA Paper 78974, University Library of Munich, Germany.
    14. Antonio Ciccone & Marek Jarociński, 2010. "Determinants of Economic Growth: Will Data Tell?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 222-246, October.
    15. Turnovsky, Stephen J. & Chattopadhyay, Pradip, 2003. "Volatility and growth in developing economies: some numerical results and empirical evidence," Journal of International Economics, Elsevier, vol. 59(2), pages 267-295, March.
    16. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, vol. 85(5), pages 1138-1151, December.
    17. Steven N. Durlauf & Andros Kourtellos & Chih Ming Tan, 2008. "Empirics of Growth and Development," Chapters, in: Amitava Krishna Dutt & Jaime Ros (ed.), International Handbook of Development Economics, Volumes 1 & 2, volume 0, chapter 3, Edward Elgar Publishing.
    18. David Gould & Roy Ruffin, 1995. "Human capital, trade, and economic growth," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 131(3), pages 425-445, September.
    19. Matthew Higgins & Daniel Levy & Andrew T. Young, 2003. "Growth and Convergence across the US: Evidence from County-Level Data," Working Papers 2003-03, Bar-Ilan University, Department of Economics.
    20. Gupta, Dipak K. & Madhavan, M. C. & Blee, Andrew, 1998. "Democracy, economic growth and political instability: An integrated perspective," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 27(5), pages 587-611.

    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:wbk:wbrwps:1082. See general information about how to correct material in RePEc.

    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: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.