GOVERNMENT SPENDING AND ECONOMIC GROWTH RELATIONSHIP: CAN A BETTER INSTITUTIONAL QUALITY FIX THE OUTCOMES?

Muhammad Khan, Saqlain Raza () and Xuan Vinh Vo
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Muhammad Khan: Department of Social Sciences, IQRA University, H-9 Islamabad, Pakistan†University of Economics Ho Chi Minh City, 59C Nguyen Dinh Chieu Street, District 3, HCMC, Vietnam
Saqlain Raza: ��COMSATS University, Islamabad, Pakistan
Xuan Vinh Vo: ��University of Economics Ho Chi Minh City, 59C Nguyen Dinh Chieu Street, District 3, HCMC, Vietnam§Institute of Business Research and CFVG Ho Chi Minh City, University of Economics Ho Chi Minh City, Vietnam

The Singapore Economic Review (SER), 2024, vol. 69, issue 01, 227-249

Abstract: Empirical growth literature finds conflicting results on the relationship between public spending and long-run economic growth. This paper shows that the nature of relationship between the two variables depends upon the institutional quality of a country. Our empirical investigation relies upon OLS, fixed-effects and system-GMM estimators for a large panel of 113 developed and developing economies during the period 1981–2015. The main findings confirm that the adverse impact of public size on output growth holds only for countries with poor institutional quality. By contrast, when the institutional quality exceeds certain thresholds, the growth inhibiting effects of government size become insignificant. From the fiscal policy viewpoint, these outcomes imply that the productivity of public spending is more important than an excessively large public size of the country.

Keywords: Government size; institutions; economic growth (search for similar items in EconPapers)
JEL-codes: E02 H50 O43 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S0217590820500216

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