Government Size and Economic Growth: An Empirical Examination of Selected Emerging Economies

Megha Jain, Aishwarya Nagpal and Abhay Jain

South Asian Journal of Macroeconomics and Public Finance, 2021, vol. 10, issue 1, 7-39

Abstract: The current study attempts to examine the linkage between government (public) spending and economic growth in the broader framework of selected South Asian Nations (SANs), BRICS and other emerging nations by using two sets of empirical modelling over the period 2007–2016 by using inverted U-shaped hypothesis, propounded by Armey curve (1995). The first set has employed system GMM technique to explore the presence of the Armey curve hypothesis using the square term of government size, while the second set has used the threshold regression using system GMM panel modelling to investigate the subsequent reversals (tipping point). The key findings signify the existence of an inverted U-shaped relationship for the selected data set of emerging nations and, therefore, support the Armey curve hypothesis . The projected threshold (tipping) levels (as a percentage of GDP) are 24.31% for the government total expenditures (GTotExp), 12.92% for consumption spending (GConExp) and 7.11% for investment spending (GInvExp). It has been observed that a rise in the public spending (size) resulted in a substantial increase (decrease) in the growth rate when the public spending was before (after) the optimal threshold level, indicating a non-monotonic association. The findings of the study also suggest a policy implication that public spending could only be a short-term measure to deal with crises in any nation, but not a long-term solution. JEL Classification : C23, C33, E60, E62, H00, H50, O40, O50

Keywords: GDP; government spending; consumption expenditure; threshold regression; panel data; emerging nations (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/2277978720979889 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:smppub:v:10:y:2021:i:1:p:7-39

DOI: 10.1177/2277978720979889

Access Statistics for this article

More articles in South Asian Journal of Macroeconomics and Public Finance
Bibliographic data for series maintained by SAGE Publications ().