IDEAS home Printed from https://ideas.repec.org/a/ejn/ejefjr/v6y2018i1p107-132.html
   My bibliography  Save this article

Public Expenditures And Growth In A Monetary Union: The Case Of Waemu

Author

Listed:
  • Nihal Bayraktar

    (Penn State University, USA)

  • Blanca Moreno-Dodson

    (The World Bank, USA)

Abstract

The focus of the paper is on how public spending volume, composition (current versus capital) and quality are linked to economic growth in lower-income countries that are members of a monetary union. We specifically investigate the case of the West Africa Economic and Monetary Union (WAEMU) countries, which have fluctuating growth rates and relatively low-income levels compared to other parts of the world. The empirical analysis covers the period 2000-2013. The results indicate that total public spending has a significant impact on growth. While the impact of the capital component is positive and statistically significant, the effect of the current component tends to be negative, but not significant. When the capital component is further split into two: public fixed capital investment and public other capital expenditures, defined as total public capital expenditure minus public fixed capital investment, the results show that not only physical capital formation but also human capital spending is important for growth. While the volatility measure for public investment has a clear negative and statistically significant impact on growth, the quality of public fixed investment has a positive impact. The findings also indicate that fiscal deficits have not been an important constraint to the effectiveness of government spending on growth, reflecting the fiscal discipline achieved in the union. On the other hand, the debt-to-GDP ratio clearly shows a significant negative impact on growth, indicating the risk associated with debt distress. Total fiscal revenue has a significant and positive effect on growth, most likely indicating relatively low levels of fiscal revenues to GDP ratios, partially boosted by natural resources, coupled with grants. In each regression specification, it is observed that the contributions of both trade openness and private investment on growth are positive and significant. The results also indicate that the quality of institutions, measured by an index of bureaucracy quality, is critical to enhancing the positive effect of public spending on growth. The findings are robust to different regression methodologies, as well as the inclusion of short- and medium-term data.

Suggested Citation

  • Nihal Bayraktar & Blanca Moreno-Dodson, 2018. "Public Expenditures And Growth In A Monetary Union: The Case Of Waemu," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 6(1), pages 107-132.
    • Handle: RePEc:ejn:ejefjr:v:6:y:2018:i:1:p:107-132
    as

    Download full text from publisher

    File URL: https://eurasianpublications.com/wp-content/uploads/2021/02/EJEF-6.1.10.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. James Ang, 2009. "Do public investment and FDI crowd in or crowd out private domestic investment in Malaysia?," Applied Economics, Taylor & Francis Journals, vol. 41(7), pages 913-919.
    2. Agénor, Pierre-Richard & Bayraktar, Nihal & El Aynaoui, Karim, 2008. "Roads out of poverty? Assessing the links between aid, public investment, growth, and poverty reduction," Journal of Development Economics, Elsevier, vol. 86(2), pages 277-295, June.
    3. Christian Ebeke & Helene Ehrhart, 2012. "Tax Revenue Instability in Sub-Saharan Africa: Consequences and Remedies," Journal of African Economies, Centre for the Study of African Economies, vol. 21(1), pages 1-27, January.
    4. Miguel Ramirez, 2004. "Is public infrastructure spending productive in the Mexican case? A vector error correction analysis," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 13(2), pages 159-178.
    5. Mr. Santiago Acosta Ormaechea & Atsuyoshi Morozumi, 2013. "Can a Government Enhance Long-Run Growth by Changing the Composition of Public Expenditure?," IMF Working Papers 2013/162, International Monetary Fund.
    6. Mahmoud Wahab, 2004. "Economic growth and government expenditure: evidence from a new test specification," Applied Economics, Taylor & Francis Journals, vol. 36(19), pages 2125-2135.
    7. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    8. Acemoglu, Daron & Johnson, Simon & Robinson, James & Thaicharoen, Yunyong, 2003. "Institutional causes, macroeconomic symptoms: volatility, crises and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 49-123, January.
    9. Devarajan, Shantayanan & Swaroop, Vinaya & Heng-fu, Zou, 1996. "The composition of public expenditure and economic growth," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 313-344, April.
    10. António Afonso & Juan Alegre, 2011. "Economic growth and budgetary components: a panel assessment for the EU," Empirical Economics, Springer, vol. 41(3), pages 703-723, December.
    11. Museru, Malimu & Toerien, Francois & Gossel, Sean, 2014. "The Impact of Aid and Public Investment Volatility on Economic Growth in Sub-Saharan Africa," World Development, Elsevier, vol. 57(C), pages 138-147.
    12. Folster, Stefan & Henrekson, Magnus, 2001. "Growth effects of government expenditure and taxation in rich countries," European Economic Review, Elsevier, vol. 45(8), pages 1501-1520, August.
    13. Chakraborty Shankha & Dabla-Norris Era, 2011. "The Quality of Public Investment," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-29, August.
    14. Mr. Paul R Masson & Mr. Ousmane Dore, 2002. "Experience with Budgetary Convergence in the WAEMU," IMF Working Papers 2002/108, International Monetary Fund.
    15. Carsten Colombier, 2011. "Does the composition of public expenditure affect economic growth? Evidence from the Swiss case," Applied Economics Letters, Taylor & Francis Journals, vol. 18(16), pages 1583-1589.
    16. Dani Rodrik, 2006. "Institutions for High-Quality Growth: What They Are and How to Acquire Them," Chapters, in: Kartik Roy & Jörn Sideras (ed.), Institutions, Globalisation and Empowerment, chapter 2, Edward Elgar Publishing.
    17. Kandil, Magda, 2001. "Asymmetry in the effects of us government spending shocks: evidence and implications," The Quarterly Review of Economics and Finance, Elsevier, vol. 41(2), pages 137-165.
    18. Cavallo, Eduardo & Daude, Christian, 2011. "Public investment in developing countries: A blessing or a curse?," Journal of Comparative Economics, Elsevier, vol. 39(1), pages 65-81, March.
    19. John C. Anyanwu, 2014. "Factors Affecting Economic Growth in Africa: Are There any Lessons from China?," African Development Review, African Development Bank, vol. 26(3), pages 468-493, September.
    20. Benos, Nikos, 2009. "Fiscal policy and economic growth: empirical evidence from EU countries," MPRA Paper 19174, University Library of Munich, Germany.
    21. Joel Slemrod, 1995. "What Do Cross-Country Studies Teach about Government Involvement, Prosperity, and Economic Growth?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 373-431.
    22. James Peery Cover, 1992. "Asymmetric Effects of Positive and Negative Money-Supply Shocks," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(4), pages 1261-1282.
    23. C. Colombier, 2009. "Growth effects of fiscal policies: an application of robust modified M-estimator," Applied Economics, Taylor & Francis Journals, vol. 41(7), pages 899-912.
    24. Antonin Rusek, 2014. "Eurozone’s Future: Convergence, Restructuring or “Muddling Through”?," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 2(3), pages 45-56.
    25. Nihal Bayraktar & Blanca Moreno-Dodson, 2015. "How Can Public Spending Help You Grow? An Empirical Analysis For Developing Countries," Bulletin of Economic Research, Wiley Blackwell, vol. 67(1), pages 30-64, January.
    26. Rajkumar, Andrew Sunil & Swaroop, Vinaya, 2008. "Public spending and outcomes: Does governance matter?," Journal of Development Economics, Elsevier, vol. 86(1), pages 96-111, April.
    27. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
    28. Nihal Bayraktar, 2017. "Impacts Of Africa'S Total And Commodity-Based Trade With China And Oecd Countries†," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 5(1), pages 95-113.
    29. Blanca Moreno-Dodson & Nihal Bayraktar, 2011. "How Public Spending Can Help You Grow : An Empirical Analysis for Developing Countries," World Bank Publications - Reports 10107, The World Bank Group.
    30. Baldacci, Emanuele & Clements, Benedict & Gupta, Sanjeev & Cui, Qiang, 2008. "Social Spending, Human Capital, and Growth in Developing Countries," World Development, Elsevier, vol. 36(8), pages 1317-1341, August.
    31. Edward Batte Sennoga & John Mary Matovu, 2013. "Public Spending Composition in Uganda and its Implications for Growth and Poverty Reduction," Public Finance Review, , vol. 41(2), pages 227-247, March.
    32. Philip Keefer & Stephen Knack, 2007. "Boondoggles, Rent-Seeking, and Political Checks and Balances: Public Investment under Unaccountable Governments," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 566-572, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nihal Bayraktar, 2019. "Effectiveness of public investment on growth in sub-Saharan Africa," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 9(4), pages 421-457, December.
    2. Maiga Nouhoun Oumarou & Sirpe Gnanderman, 2023. "Optimal size of public expenditure in the countries of the West African Economic and Monetary Union (WAEMU)," Economics Bulletin, AccessEcon, vol. 43(1), pages 146-160.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nihal Bayraktar & Blanca Moreno-Dodson, 2015. "How Can Public Spending Help You Grow? An Empirical Analysis For Developing Countries," Bulletin of Economic Research, Wiley Blackwell, vol. 67(1), pages 30-64, January.
    2. Ho Thuy Ai & Ping, Lin, 2018. "Impacts of fiscal policy on economic growth: Another look from institutional perspective," Economics Discussion Papers 2018-45, Kiel Institute for the World Economy (IfW Kiel).
    3. Nazila Alinaghi & W. Robert Reed, 2021. "Taxes and Economic Growth in OECD Countries: A Meta-analysis," Public Finance Review, , vol. 49(1), pages 3-40, January.
    4. Hajamini, Mehdi & Falahi, Mohammad Ali, 2018. "Economic growth and government size in developed European countries: A panel threshold approach," Economic Analysis and Policy, Elsevier, vol. 58(C), pages 1-13.
    5. Menescal, Lucas & Alves, José, 2024. "Optimal threshold taxation: An empirical investigation for developing economies," The Journal of Economic Asymmetries, Elsevier, vol. 29(C).
    6. Dackehag, Margareta & Hansson, Åsa, 2015. "Taxation of Dividend Income and Economic Growth: The Case of Europe," Working Paper Series 1081, Research Institute of Industrial Economics.
    7. Morozumi, Atsuyoshi & Veiga, Francisco José, 2016. "Public spending and growth: The role of government accountability," European Economic Review, Elsevier, vol. 89(C), pages 148-171.
    8. Atsuyoshi Morozumi & Francisco José Veiga, 2014. "Public spending and growth: the role of institutions," NIPE Working Papers 11/2014, NIPE - Universidade do Minho.
    9. Tamoya Christie, 2014. "The Effect Of Government Spending On Economic Growth: Testing The Non-Linear Hypothesis," Bulletin of Economic Research, Wiley Blackwell, vol. 66(2), pages 183-204, April.
    10. Dimitrios Paparas & Christian Richter, 2015. "Fiscal policy and economic growth: Empirical evidence from the European Union," Working Papers 2015.06, International Network for Economic Research - INFER.
    11. Dimitrios PAPARAS & Christian RICHTER & Alexandros PAPARAS, 2015. "Fiscal Policy and Economic Growth, Empirical Evidence in European Union," Turkish Economic Review, KSP Journals, vol. 2(4), pages 239-268, December.
    12. Bayraktar, Nihal & Moreno-Dodson, Blanca, 2010. "How can public spending help you grow? an empirical analysis for developing countries," Policy Research Working Paper Series 5367, The World Bank.
    13. Arawatari, Ryo & Hori, Takeo & Mino, Kazuo, 2023. "Government expenditure and economic growth: A heterogeneous-agents approach," Journal of Macroeconomics, Elsevier, vol. 75(C).
    14. Eleftherios Goulas & Athina Zervoyianni, 2012. "Growth, Deficits and Uncertainty in a Panel of 28 Countries," Working Paper series 52_12, Rimini Centre for Economic Analysis.
    15. Tuan T. Chu & Jens Hölscher & Dermot McCarthy, 2020. "The impact of productive and non-productive government expenditure on economic growth: an empirical analysis in high-income versus low- to middle-income economies," Empirical Economics, Springer, vol. 58(5), pages 2403-2430, May.
    16. Benos, Nikos, 2009. "Fiscal policy and economic growth: empirical evidence from EU countries," MPRA Paper 19174, University Library of Munich, Germany.
    17. Nihal Bayraktar, 2019. "Effectiveness of public investment on growth in sub-Saharan Africa," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 9(4), pages 421-457, December.
    18. Roberto Ricciuti & Antonio Savoia & Kunal Sen, 2019. "What determines administrative capacity in developing countries?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(5), pages 972-998, October.
    19. Tommaso Agasisti & Cristian Barra & Roberto Zotti, 2020. "Public finance, government spending and economic growth: the case of local governments in Italy," Working papers 99, Società Italiana di Economia Pubblica.
    20. James L. Butkiewicz & Halit Yanikkaya, 2011. "Institutions and the Impact of Government Spending on Growth," Journal of Applied Economics, Taylor & Francis Journals, vol. 14(2), pages 319-341, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ejn:ejefjr:v:6:y:2018:i:1:p:107-132. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Esra Barakli (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.