Public Expenditure in the Fastest Growing and Emerging Market Economies in Africa: The Role of Institutional Quality

Abstract

Emerging and fastest-growing markets in Africa are developing their financial environment to attract investors and position themselves as an upcoming generation of strong and influential markets. The subject of this study is public expenditure outlays used to stimulate economic activity in emerging markets in Africa. The purpose of this study is to isolate the main determinants of government spending and the role of institutional quality. The relevance lies in the significance of maintaining such expenditures at optimal levels to benefit the economy. The scientific novelty lies in the analysis of the main factors explaining government spending to support policy formulation in emerging markets. This study applied the autoregressive distributed lag (ARDL) model to test both long-term and short-term dynamics. Based on the results, the study demonstrated both joint and long-run causality between the selected variables and government expenditure. Short-term causality is not confirmed. The study concluded that the Wagner law still holds, in which economic growth is coupled with an increase in expenditure. The Economic freedom index is more effective in controlling government expenditure than the POLITY 2 variable. This study offers some policy implications.

Keywords

• public expenditure
• emerging markets
• institutional quality
• wagner law
• autoregressive distributed lag
• africa