Government expenditures and economic growth in developing countries: Evidence from a panel data analysis

Abstract

This paper re-estimates the two-sector growth model of Ram (1986), “Government Size and Economic Growth: A New Framework and Some Evidence from Cross-Section and Time-Series Data”, American Economic Review, 7(1), 191- 203, by employing panel data techniques and using a more recent data set for thirtyfour developing countries. The estimation results confirm the cross-sectional findings of Ram: Government size is positively associated with the economic growth and economic performance of developing countries. The total effect of government size on economic growth is positive and quite large. In addition, the marginal externality effect of government size on non-government output is positive. Another finding of the study is that the country effects estimated for the models of Ram are positive for most of the Asian countries in the sample and negative for most of the Latin American and African countries.