The impact of Government Expenditure on Economic Growth: A Cross Sectional Analysis

Abstract

Does government expenditure have a positive or negative effect on economic growth? Historical studies eventually discover mixed empirical evidence on the correlation between government expenditure and economic growth. It can be measured in many ways with different types of variables. The principal motive of this specific study is to re-examine the causal relationship between government expenditure and economic growth by applying the cross-sectional regression and by including 17 Asian countries and 17 Western countries over the year of 2016. This research used secondary data, and it assisted to measure the effectiveness of government expenditures on growth for Asian countries and Western countries. Required data collected from The World Bank for the year 2016. Gross Domestic Product (GDP) captures the economic growth of a country. This paper helps us to understand that government expenditures are an important determinant of growth. The study investigates the relationship between most of the components of expenditure and economic growth. These variables are statistically insignificant for Western countries. Results advocate that the spending of the government in western countries does not have much effect on the economic growth. The results also indicate that government spending is obliging to economic growth of the developing countries and statistically significant. It is concluded that government expenditure has a better impact on economic growth in Asian countries than that of Western countries.