We use cookies to ensure that we give you the best experience on our website. By continuing to browse this repository, you give consent for essential cookies to be used. You can read more about our Privacy and Cookie Policy.

Durham Research Online
You are in:

Do government expenditures and institutions drive growth? evidence from developed and developing economies.

Zahirah Mohd Sidek, Noor and Asutay, Mehmet (2021) 'Do government expenditures and institutions drive growth? evidence from developed and developing economies.', Studies in economics and finance., 38 (2). pp. 400-440.


Purpose – Most empirical studies on the government expenditure-economic growth nexus suggest a negative relationship between the size of the government expenditures and economic growth especially government consumption expenditures. Given these findings, the government should focus on development expenditures and reduce non-development expenditures for higher economic growth. However, the authors argue that this may not be the case, as government consumption expenditures along with better institutional quality promote growth via reduced corruption, reduction of political risks and good governance. The purpose of this study is to provide empirical evidences that both government consumption and development expenditure promote growth in the presence of better institutional quality. Design/methodology/approach – This paper re-examines the impact of government expenditures on growth whilst controlling institutional factors for a sample of 30 developed and 91 developing countries from 1984 to 2017. Government expenditure is segregated into consumption and development expenditures. Findings – The results are consistent with existing findings where government consumption expenditures have a negative effect on growth and government development expenditures contribute positively towards growth. However, when the authors conditioned government consumption expenditures with institutional variables, results suggest that in the presence of good institutions, both government consumption and development expenditures promote growth. Practical implications – The findings in this paper suggest that in the presence of good institutions, government consumption expenditures will contribute positively towards growth. The results are relatively consistent for both developing and developed economies, which suggests the importance of institutional factors leading to a parallel movement towards long run growth path. In other words, long run economic growth is driven by a similar institutional environment. Originality/value – Both developed and developing countries show similar reactions towards consumption and development expenditures. This indicates that despite the level of development, government expenditure.

Item Type:Article
Full text:(AM) Accepted Manuscript
Available under License - Creative Commons Attribution Non-commercial No Derivatives.
Download PDF
Publisher Web site:
Publisher statement:This article is made available under a Creative Commons Attribution Non-commercial International Licence 4.0 (CC BY-NC 4.0) and any reuse must be in accordance with the terms outlined by the licence.
Date accepted:15 March 2020
Date deposited:21 April 2020
Date of first online publication:28 May 2020
Date first made open access:17 June 2020

Save or Share this output

Look up in GoogleScholar