Public expenditure and economic development: New evidence from the BRICS-SAARC-ASEAN region

Abstract

Regardless of theoretical backgrounds that assumed a positive association between public expenditure and economic development, the present study on this linkage is inconclusive. This empirical work re-investigates the effect of government expenditure on GDP growth employing more recent dataset spanning the period 1991-2019 in the region of Brazil, Russia, India, China, South Africa (BRICS), Association of South East Asian Nations (ASEAN), and South Asian Association for Regional Cooperation (SAARC). Considering the issues of cross sectional dependence, the estimated findings show long run relationship between government size, inflation, human capital, employment, unemployment, export, and economic growth. The fully modified OLS estimates reveal that government spending has a positive influence on economic development. Further, the analysis indicates that human capital, employment, and export increases economic growth. However, unemployment and inflation have a detrimental effect on economic development. Our result confirms the unidirectional causality between public spending and economic growth, suggesting Keynesian view of public spending in stimulating economic development. The sensitivity of the results have been checked with the help of dynamic OLS estimator.

Keywords

• government expenditure
• economic development
• human capital
• keynesian macroeconomic theory
• dumitrescu-hurlin panel causality
• asian economies