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Examining the impact of government spending on the finance-growth nexus: evidence from post-communist economies

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  • Hazwan Haini
  • Pang Wei Loon

Abstract

This study examines the impact of government spending on the finance-growth nexus in 27 post-communist economies from 1995 to 2017 using dynamic panel estimators. Many transitional economies have attempted to reduce the influence of government intervention during their early transitional period while reforming their respective financial sectors. The findings show that overall financial development is positive to growth, while government spending has a negative impact on growth. More importantly, the marginal effects of financial development are positive to growth at low levels of government spending. In contrast, at high levels of government spending, financial development has a negative relationship to growth. Focusing on different aspects of financial development, the findings show that financial access and efficiency are more effective at stimulating growth compared to financial depth. Post-communist economies should ensure that government spending should not crowd out the financial sector, and promote financial efficiency and accessibility.

Suggested Citation

  • Hazwan Haini & Pang Wei Loon, 2022. "Examining the impact of government spending on the finance-growth nexus: evidence from post-communist economies," Post-Communist Economies, Taylor & Francis Journals, vol. 34(6), pages 756-778, August.
    • Handle: RePEc:taf:pocoec:v:34:y:2022:i:6:p:756-778
    DOI: 10.1080/14631377.2021.2006491
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    Cited by:

    1. Kholeka Mdingi & Sin-Yu Ho, 2023. "Income inequality and economic growth: An empirical investigation in South Africa," Cogent Economics & Finance, Taylor & Francis Journals, vol. 11(2), pages 2230027-223, June.
    2. Ichiro Iwasaki & Shigeki Ono, 2024. "Economic development and the finance–growth nexus: a meta-analytic approach," Applied Economics, Taylor & Francis Journals, vol. 56(57), pages 8021-8038, December.
    3. Hazwan Haini & Lutfi Abdul Razak & Pang Wei Loon & Sufrizul Husseini, 2023. "Re-examining the finance–institutions–growth nexus: does financial integration matter?," Economic Change and Restructuring, Springer, vol. 56(3), pages 1895-1924, June.

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