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The Cause Of Higher Economic Growth: Assessing The Long-Term And Short-Term Relationships Between Economic Growth And Government Expenditure

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  • Tatahi, Motasam
  • Cetin, Emre Ipekci
  • Cetin, M. Koray

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.

Suggested Citation

  • Tatahi, Motasam & Cetin, Emre Ipekci & Cetin, M. Koray, 2016. "The Cause Of Higher Economic Growth: Assessing The Long-Term And Short-Term Relationships Between Economic Growth And Government Expenditure," Macroeconomic Dynamics, Cambridge University Press, vol. 20(1), pages 229-250, January.
    • Handle: RePEc:cup:macdyn:v:20:y:2016:i:01:p:229-250_00
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    Cited by:

    1. Yana Petrova, 2020. "On cointegration between the insurance market and economic activity," Empirical Economics, Springer, vol. 59(3), pages 1127-1138, September.
    2. Mary Donkor & Yusheng Kong & Emmanuel Kwaku Manu & Albert Henry Ntarmah & Florence Appiah-Twum, 2022. "Economic Growth and Environmental Quality: Analysis of Government Expenditure and the Causal Effect," IJERPH, MDPI, vol. 19(17), pages 1-23, August.

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