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THE CAUSE OF HIGHER ECONOMIC GROWTH: ASSESSING THE LONG-TERM AND SHORT-TERM RELATIONSHIPS BETWEEN ECONOMIC GROWTH AND GOVERNMENT EXPENDITURE

Published online by Cambridge University Press:  20 June 2014

Motasam Tatahi ,
Emre Ipekci Cetin  and
M. Koray Cetin
Motasam Tatahi*
Affiliation:
European Business School—London
Emre Ipekci Cetin
Affiliation:
Akdeniz University—Antalya
M. Koray Cetin
Affiliation:
Akdeniz University—Antalya
*
Address correspondence to: Motasam Tatahi, Department of Finance and Economics, European Business School—London, Inner Circle, Regent's Park, London NW1 4NS, UK; e-mail: [email protected].
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Abstract

This study examines the cause of higher (5% or more) economic growth rates in countries around the world over the past 35 years. It explores the long- and short-term relationships between GDP and government expenditures in these countries. A panel data set of 60 countries over the period from 1976 to 2010 is deployed to implement pooled mean group estimation. Countries are divided into three economic growth rate groups: high, middle, and low. Panel-based/error correction models are used to estimate long-term equilibrium relationships and short-term dynamics between government expenditures and GDP growth rates. Results indicate that the hypothesis of a common long-term elasticity and a short-term dynamic relationship between GDP growth rates and government expenditures cannot be rejected for high group countries, whereas for middle group countries this is true only for the long term, not for the short term. No long-term or short-term relationship between these two variables exists for low-growth-rate countries.

Keywords

Government ExpenditureGrowth RatesPanel Co-integrationError Correction Models
Type
Articles
Information
Macroeconomic Dynamics , Volume 20 , Issue 1 , January 2016 , pp. 229 - 250
Copyright
Copyright © Cambridge University Press 2014 

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