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The long-run relationship between public consumption and output in developing countries: Evidence from panel data

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  • Francois, John Nana
  • Keinsley, Andrew

Abstract

This paper uses heterogeneous panel cointegration techniques to examine the long-run effect of public consumption on output for 33 low- and lower-middle-income developing countries from 1972 to 2014. We include total investment in the cointegration relation and explicitly deal with cross-sectional dependence in the data that arises due to unobserved common factors. We find that on average, government consumption has a negative impact on output in the long-run — a result driven by non-sub-Saharan African countries in our sample. In contrast, investment has a consistent positive effect on output. The results suggest that fiscal adjustments that cut government consumption while maintaining investment spending will have a potential expansionary effect on long-run output.

Suggested Citation

  • Francois, John Nana & Keinsley, Andrew, 2019. "The long-run relationship between public consumption and output in developing countries: Evidence from panel data," Economics Letters, Elsevier, vol. 174(C), pages 96-99.
    • Handle: RePEc:eee:ecolet:v:174:y:2019:i:c:p:96-99
    DOI: 10.1016/j.econlet.2018.10.022
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    Cited by:

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    More about this item

    Keywords

    Heterogeneous panel cointegration; Common factor; Public consumption; Output; Developing economies;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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