Government Expenditure and Economic Growth: Further Evidence from Cross-Country Analysis

This paper analyzes the relationship between economic growth and government expenditure growth by estimating an augmented GDP-growth equation on the basis of cross-country data, and using ordinary least squares (0LS) and random coefficient (RC) methods. The latter method yields both mean response coefficients, as in the case of the OLS method, as well as countryspecific coefficients. The relationship has been tested for two separate periods, i.e., 1965-80 and 1980-90. The estimates obtained using the RC method confirm existence of a positive relationship between government expenditure and economic growth, which is found to be stable across time periods, but unstable across different country groups. The observed differences between coefficients across country groups are attributable to structural as well as behavioral differences across countries.