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The Optimal Magnitude of Government Spending: Evidence from Cambodia

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  • Leanghak Hok
  • Zoltán Bartha

Abstract

Scholars and policymakers have vigorously debated what the impact of government spending on economic growth is. Some current research and theoretical models suggest that the reaction of economic growth to the extension of government spending can be either positive or negative. This article intends to investigate the inverted-U shaped relationship between output growth and government spending (i.e., government fixed capital formation [GFCF] and government final consumption expenditure [GFCE]). Ordinary least squares (OLS) is employed as an approach to annual data for Cambodia obtained from 1971 to 2015. The result reveals that GFCF and GFCE have an inverted-U shaped relation with economic growth and that 5.40% and 7.23% are the optimal values of GFCF and GFCE, respectively. The labour growth rate and export growth rate contribute positively to the growth rate of output. This study indicates that the increasing level of government expenditure reduces the efficacy of government spending, and also helps Cambodia’s policymakers to control fiscal policy more efficiently. JEL Classification: C80, E62, H50, O40

Suggested Citation

  • Leanghak Hok & Zoltán Bartha, 2023. "The Optimal Magnitude of Government Spending: Evidence from Cambodia," South Asian Journal of Macroeconomics and Public Finance, , vol. 12(1), pages 29-52, June.
    • Handle: RePEc:sae:smppub:v:12:y:2023:i:1:p:29-52
    DOI: 10.1177/22779787221093116
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    Keywords

    Economic growth; government investment; government consumption; OLS; Cambodia;
    All these keywords.

    JEL classification:

    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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