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Government size and economic growth: an application of the smooth transition regression model

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  • Song-Zan Chiou-Wei
  • Zhen Zhu
  • Yung-Hsing Kuo

Abstract

This article employs a smooth transition autoregressive model to investigate the effects of government size (measured as the share of government consumption expenditure in gross domestic product) on economic growth using South Korea, Malaysia, Singapore, Taiwan and Thailand as sample countries during the period 1961 to 2004. The empirical results reveal that there is a nonlinear relationship among variables for each country except Malaysia and confirm the view of Barro (1990) that the government size over a certain threshold will have an adverse impact on economic growth rate for Korea, Taiwan and Thailand. Through the smooth transition autoregressive framework, we find that the estimated threshold of government size is 11% for most countries while the threshold government size of Taiwan is 16% and further conclude that the bigger government size is not really the better.

Suggested Citation

  • Song-Zan Chiou-Wei & Zhen Zhu & Yung-Hsing Kuo, 2010. "Government size and economic growth: an application of the smooth transition regression model," Applied Economics Letters, Taylor & Francis Journals, vol. 17(14), pages 1405-1415.
    • Handle: RePEc:taf:apeclt:v:17:y:2010:i:14:p:1405-1415
    DOI: 10.1080/13504850902984295
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    Cited by:

    1. 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.
    2. Afsin Sahin, 2019. "Loom of Symmetric Pass-Through," Economies, MDPI, vol. 7(1), pages 1-25, February.
    3. Olaoye, Olumide O. & Eluwole, Oluwatosin O. & Ayesha, Aziz & Afolabi, Olugbenga O., 2020. "Government spending and economic growth in ECOWAS: An asymmetric analysis," The Journal of Economic Asymmetries, Elsevier, vol. 22(C).
    4. Andrew Phiri, 2017. "Nonlinearities in Wagner's law: further evidence from South Africa," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 9(3), pages 231-249.
    5. Hüseyin Şen & Ayşe Kaya & Ayşegül Durucan, 2023. "New insights into the growth-maximizing size of government: evidence and implications for Turkey," Economic Change and Restructuring, Springer, vol. 56(4), pages 2243-2296, August.
    6. Trofimov, Ivan D., 2020. "Health Care Spending and Economic Growth: Armey-Rahn Curve in a Panel of European Economies," MPRA Paper 106705, University Library of Munich, Germany.
    7. Asimakopoulos, Stylianos & Karavias, Yiannis, 2016. "The impact of government size on economic growth: A threshold analysis," Economics Letters, Elsevier, vol. 139(C), pages 65-68.
    8. Daxin Dong & Boyang Xu & Ning Shen & Qian He, 2021. "The Adverse Impact of Air Pollution on China’s Economic Growth," Sustainability, MDPI, vol. 13(16), pages 1-27, August.
    9. Ridha Nouira & Mohamed Kouni, 2018. "Optimal Government Size and Economic Growth in Developing and MENA Countries: A Dynamic Panel Threshold Analysis," Working Papers 1256, Economic Research Forum, revised 15 Nov 2018.
    10. Trofimov, Ivan D., 2020. "The optimum size of public education spending: panel data evidence," MPRA Paper 106847, University Library of Munich, Germany.
    11. Pelin Varol Iyidogan & Taner Turan, 2017. "Government Size and Economic Growth in Turkey: A Threshold Regression Analysis," Prague Economic Papers, Prague University of Economics and Business, vol. 2017(2), pages 142-154.
    12. Akram, Vaseem & Rath, Badri Narayan, 2020. "Optimum government size and economic growth in case of Indian states: Evidence from panel threshold model," Economic Modelling, Elsevier, vol. 88(C), pages 151-162.
    13. Mehdi Hajamini & Mohammad Ali Falahi, 2014. "The nonlinear impact of government consumption expenditure on economic growth: Evidence from low and low-middle income countries," Cogent Economics & Finance, Taylor & Francis Journals, vol. 2(1), pages 1-15, December.

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