How Can Public Spending Help You Grow? An Empirical Analysis for Developing Countries

Although many studies indicate that both the level and composition of public spending are significant for economic growth, the results in the empirical literature are still mixed. This paper studies the importance of country sample selection and ex...

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Bibliographic Details
Main Authors:	Bayraktar, Nihal, Moreno-Dodson, Blanca
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ALLOCATION AVERAGE PRODUCTIVITY BANK POLICY BOND BUDGET BALANCE BUDGET DEFICIT BUDGET SURPLUS BUSINESS CYCLE BUSINESS CYCLES CAPITAL ACCUMULATION CAPITAL EXPENDITURE CAPITAL SPENDING CENTRAL GOVERNMENT CENTRAL GOVERNMENT EXPENDITURE CIVIL SERVICE COEFFICIENTS COMPARATIVE ANALYSIS COMPARATIVE ECONOMIC STUDIES COMPARISON GROUP COMPOSITION OF GOVERNMENT SPENDING COMPOSITION OF PUBLIC SPENDING CONSUMER PRICE INDEX CONSUMPTION EXPENDITURE CORRELATION COEFFICIENT COUNTRY CHARACTERISTICS COUNTRY DATA COUNTRY INITIAL COUNTRY LEVEL COUNTRY RISK COUNTRY SPECIFIC CREATIVE ACCOUNTING CREDIBILITY CROSS-COUNTRY ANALYSIS CURRENT EXPENDITURES DATA ANALYSIS DATA AVAILABILITY DEBT DECISION-MAKING DEFENSE EXPENDITURES DEVELOPED COUNTRIES DEVELOPING COUNTRIES DOMESTIC INVESTMENT DUMMY VARIABLE DUMMY VARIABLES DYNAMIC PANEL ECONOMETRIC TECHNIQUES ECONOMIC AFFAIRS ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC POLICY ECONOMIC POLICY ENVIRONMENT EMPIRICAL EVIDENCE EMPIRICAL LITERATURE EMPIRICAL RESULTS EMPIRICAL STUDIES EMPLOYMENT EQUATIONS EQUIPMENT ESTIMATED COEFFICIENT ESTIMATED COEFFICIENTS ESTIMATION RESULTS ESTIMATION TECHNIQUES EXPENDITURE EXPENDITURE CLASSIFICATION EXPENDITURE COMPOSITION EXPENDITURES EXPENDITURES ON HEALTH FINANCES FINANCIAL CRISES FINANCIAL STATISTICS FISCAL ADJUSTMENT FISCAL AFFAIRS FISCAL BALANCE FISCAL EXPENDITURES FISCAL POLICIES FISCAL POLICY FISCAL REVENUE FISCAL RULES FIXED CAPITAL GOLDEN RULE GOVERNMENT BUDGET GOVERNMENT BUDGET CONSTRAINT GOVERNMENT CONSUMPTION GOVERNMENT EXPENDITURE GOVERNMENT EXPENDITURES GOVERNMENT FINANCING GOVERNMENT INVESTMENT GOVERNMENT INVOLVEMENT GOVERNMENT REVENUE GOVERNMENT SPENDING GROSS DOMESTIC PRODUCT GROSS FIXED CAPITAL FORMATION GROWTH CONTEXT GROWTH IMPACT GROWTH MODEL GROWTH PERFORMANCE GROWTH RATE GROWTH RATES HEALTH EXPENDITURE HEALTH SERVICES HEALTH SPENDING HIGH GROWTH HOUSING HUMAN CAPITAL INCREASE GROWTH INCREASES GROWTH INDEPENDENT VARIABLES INDUSTRIAL SECTOR INEFFICIENT PROVISION INFLATION INFLATION RATE INFRASTRUCTURE INVESTMENTS INSURANCE INTERNATIONAL BANK INTERNATIONAL TRADE LABOR FORCE LAGGED VALUE LAGGED VALUES LEVEL OF PUBLIC SPENDING LIABILITY LONG RUN LONG-RUN GROWTH LOW-INCOME COUNTRIES LOWER TAXES MACROECONOMIC POLICIES MACROECONOMIC STABILITY MACROECONOMIC VARIABLES MEAN GROWTH MILITARY EXPENDITURES MONETARY FUND NATURAL RESOURCES NEGATIVE IMPACT NEGATIVE INCENTIVES NEGATIVE SIGN NET BORROWING NET DEBT NET LENDING PANEL REGRESSIONS PER CAPITA GROWTH POLICY ENVIRONMENT POLICY FORMULATION POLICY IMPLICATIONS POLICY MAKERS POLICY RESEARCH POLITICAL ECONOMY POVERTY REDUCTION PRICE INDEX PRIVATE CAPITAL PRIVATE INVESTMENT PRIVATE INVESTORS PRIVATE SECTOR PRIVATE SECTOR INVESTMENT PUBLIC PUBLIC ASSETS PUBLIC CAPITAL PUBLIC CHOICE PUBLIC CONSUMPTION PUBLIC ECONOMICS PUBLIC EDUCATION PUBLIC EDUCATION EXPENDITURE PUBLIC EXPENDITURE PUBLIC EXPENDITURES PUBLIC FUNDS PUBLIC HEALTH PUBLIC HEALTH EXPENDITURE PUBLIC INFRASTRUCTURE PUBLIC INVESTMENT PUBLIC INVESTMENTS PUBLIC SECTOR PUBLIC SECTOR INVESTMENTS PUBLIC SERVICES PUBLIC SPENDING PUBLIC TRANSPORTATION PUBLIC WORKS QUALITY OF EDUCATION REDUCING INFLATION RICH COUNTRIES ROADS RURAL INFRASTRUCTURE SIGNIFICANT EFFECT SIGNIFICANT IMPACT SIZE OF GOVERNMENT SOCIAL CONTRIBUTIONS SOCIAL EXPENDITURE SOCIAL SECURITY SOCIAL SECURITY CONTRIBUTIONS SOCIAL SPENDING SUB-NATIONAL TAX TAX RATE TAX RATES TAX REVENUE TAX REVENUES TAX STRUCTURE TAXATION TOTAL EXPENDITURE TOTAL EXPENDITURES TOTAL GOVERNMENT EXPENDITURE TOTAL PUBLIC EXPENDITURE TOTAL PUBLIC EXPENDITURES TOTAL PUBLIC SPENDING TRANSFER PAYMENTS TRANSITION ECONOMIES
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100720152334 http://hdl.handle.net/10986/3851

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Summary:	Although many studies indicate that both the level and composition of public spending are significant for economic growth, the results in the empirical literature are still mixed. This paper studies the importance of country sample selection and expenditure classification in explaining these conflicting results. It investigates a set of fast-growing countries versus a mix of countries with different growth patterns. The regression specifications include different components of public expenditure and total fiscal revenues, always considering the overall government budget constraint. Total public spending is first disaggregated using a definition that classifies public spending as productive versus unproductive components, an a priori criterion that is based on the expected impact of public spending items on the private sector production function. After empirically confirming the validity of this definition in the panel analysis, the authors suggest and test an alternative definition of "core" public spending that may be more appropriate for developing countries. The empirical analysis shows that the link between growth and public spending, especially the productive and "core" components, is strong only for the fast-growing group. In addition, macroeconomic stability, openness, and private sector investment are significant in the fast-growing group, which points to the existence of an economic policy environment more conducive to growth in the first group of countries. The authors conclude that public spending can be a significant determinant of growth for countries that are capable of using funds for productive purposes.

How Can Public Spending Help You Grow? An Empirical Analysis for Developing Countries

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