The long-run relationship between public consumption and output in developing countries: Evidence from panel data

John Francois and Andrew Keinsley

Economics Letters, 2019, vol. 174, issue C, 96-99

Abstract: This paper uses heterogeneous panel cointegration techniques to examine the long-run effect of public consumption on output for 33 low- and lower-middle-income developing countries from 1972 to 2014. We include total investment in the cointegration relation and explicitly deal with cross-sectional dependence in the data that arises due to unobserved common factors. We find that on average, government consumption has a negative impact on output in the long-run — a result driven by non-sub-Saharan African countries in our sample. In contrast, investment has a consistent positive effect on output. The results suggest that fiscal adjustments that cut government consumption while maintaining investment spending will have a potential expansionary effect on long-run output.

Keywords: Heterogeneous panel cointegration; Common factor; Public consumption; Output; Developing economies (search for similar items in EconPapers)
JEL-codes: E62 F35 H5 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:174:y:2019:i:c:p:96-99

DOI: 10.1016/j.econlet.2018.10.022

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