Public Spending, Political Structure and Growth: Evidence for the Middle East and North Africa from an International Perspective

Hamid Mohtadi ()

No 9506, Working Papers from Economic Research Forum

Abstract: Based on an endogenous model in which government spending responds to lobbying, the effects of spending on growth depend on the size of public 'spillovers' relative to lobbying. The spillover effects are small and lobbying effects large in less democratic societies as informational 'asymmetries' facilitate purely rent-seeking activities. Thus, the growth effects of government spending are fewer the less democratic societies are. Cross-sectional evidence supports this hypothesis in two different samples, when MENA countries are included. Focusing on the MENA group, a larger impact of government spending on growth is found, relative to other developing economies, but not relative to industrial economies. Among the MENA countries evidence partly supports this democracy hypothesis.

Date: 1995-09-03, Revised 1995-09-03
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