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Government size and economic growth:A review of international literature

Sheilla Nyasha and Nicholas Odhiambo ()

No 25740, Working Papers from University of South Africa, Department of Economics

Abstract: In this paper, we survey the existing literature on the causal relationship between government sizeand economic growth, highlighting the theoretical and empirical evidence from topical work.Although some previous studies have endeavoured to conduct a survey on the existing research onthe causal relationship between government size and economic growth, the majority of thesestudies have focused on the impact of the two macroeconomic variables and failed to providecoverage on the causality aspect of their relationship. To our knowledge, this may well be the firststudy of its kind to survey, in detail, the existing literature on the causal relationship betweengovernment size and economic growth ? in all the countries, whether developing or developed. Byand large, our study shows that direction of causality between these two variables has fourpossible outcomes; and that all the outcomes have found empirical support, based on variationsin the country or region under study, methodology, proxies, data set used and time frameconsidered. However, of the four, the most prominent is the second view, which validatesunidirectional Granger-causality from economic growth to government size, followed by thebidirectional Granger-causality category. The study, therefore, concludes that the causalrelationship between government size and economic growth is not clear-cut.

Keywords: Government Size; Government Expenditure; Economic Growth; Granger-Causality (search for similar items in EconPapers)
Date: 2019-08
New Economics Papers: this item is included in nep-pbe
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