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Public sector spending, governance, and economic growth in Sub-Saharan Africa

Author

Listed:
  • Mumuni Sulemana

    (Institute of Governance Humanities and Social Sciences, Pan African University Yaounde, Cameroon)

  • Njong Aloysius Mom

    (Department of Economics, Faculty of Economics and Management Sciences, University of Bamenda, Bamenda, Cameroon)

Abstract

Aim/purpose – This study examined the impact of public sector spending and governance on economic growth in Sub-Saharan Africa (SSA) and further assessed the role of governance in the causal relationship between public sector spending and economic growth in the sub-region. Design/methodology/approach – The study employed the Panel Corrected Standard Errors (PCSE) estimator on data spanning the period 2002 to 2020 across a sample of 31 selected countries in SSA. To check for the robustness of the results, we adopted the Dumitrescu and Hurlin (2012) panel non-causality test to detect Granger causality in the relationships among the variables. Findings – The findings show that spending in the public sectors alone, such as education and health, does not always yield the needed outcome of promoting economic growth. Government education expenditure stimulates economic growth in SSA, albeit the effect is statistically insignificant, whereas government health expenditure has a growth-limiting effect in SSA. The results reveal that government effectiveness, rule of law, political stability, and absence of violence/terrorism are among the governance indicators that can help to fast-track economic prosperity in SSA. However, the results further show that good governance can act as a stimulant to invigorate the effectiveness of public sector spending in achieving economic growth in SSA. The growth-enhancing complementary role of good governance to public sector spending is robust across all governance indicators except political stability for government education spending and regulatory quality for government health spending. Research implications/limitations – The findings imply that strengthening good governance in SSA is non-negotiable in managing and using public funds allocated to the public sectors and in achieving sustainable economic growth, poverty alleviation, and income inequality reduction in the sub-region. However, the findings of this study are limited to the SSA region and may not apply to other regions of the globe. Originality/value/contribution – The contribution of this paper is that it examines the moderation effect of governance in the causal relationship between public spending and economic growth in SSA while accounting for cross-sectional dependence. The paper also contributes to the existing literature by using disaggregated governance and public sector spending components to ascertain the robustness of the results and better inform policy.

Suggested Citation

  • Mumuni Sulemana & Njong Aloysius Mom, 2023. "Public sector spending, governance, and economic growth in Sub-Saharan Africa," Journal of Economics and Management, Sciendo, vol. 45(1), pages 147-181, January.
    • Handle: RePEc:vrs:jecman:v:45:y:2023:i:1:p:147-181:n:9
    DOI: 10.22367/jem.2023.45.08
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    References listed on IDEAS

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    4. Li, Ying & Tariq, Muhammad & Khan, Saleem & Rjoub, Husam & Azhar, Aisha, 2022. "Natural resources rents, capital formation and economic performance: Evaluating the role of globalization," Resources Policy, Elsevier, vol. 78(C).
    5. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    More about this item

    Keywords

    education expenditure; economic growth; governance; health expenditure; panel-corrected standard errors estimation; public sector spending;
    All these keywords.

    JEL classification:

    • H - Public Economics
    • I - Health, Education, and Welfare
    • O - Economic Development, Innovation, Technological Change, and Growth

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