Optimal Government Size and Economic Growth in Developing and MENA Countries: A Dynamic Panel Threshold Analysis

Ridha Nouira () and Mohamed Kouni
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Ridha Nouira: Faculté des Sciences Économiques et de Gestion de Mahdia

No 1256, Working Papers from Economic Research Forum

Abstract: This paper aims to investigate the optimal government size as well as its effect on economic growth in selected MENA and developing countries over the period from 1988 to 2016. We use the model of Chudik et al. (2017) in order to estimate public expenditures threshold and its effect on growth. The main finding of this study shows that there is a government expenditure threshold effects on economic growth for all panel groups. Indeed, the threshold is between 10-30 percent for whole sample, 20 and 30 percent for MENA countries and 10 and 20 percent for developing countries. It is also clear that this threshold effect is significantly greater for MENA countries. Moreover, we found evidence of a U-shaped relationship between government expenditure and economic growth.

Pages: 26 pages
Date: 2018-11-15, Revised 2018-11-15
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