HOW CAN PUBLIC SPENDING HELP YOU GROW? AN EMPIRICAL ANALYSIS FOR DEVELOPING COUNTRIES
The authors would like to thank Pierre Richard Agénor, Professor at the University of Manchester and Center for Growth and Business Cycles Research; Vito Tanzi, former IMF Fiscal Affairs Department Director; Gilles Nancy, Professor at the University of Aix-Marseille II; and two referees of the Bulletin of Economic Research, for their helpful comments. This version also reflects the comments received when the paper was presented at the ECLAC Fiscal Policy Seminar for Latin America held in Chile in January 2010, ECOMOD in Turkey in July 2010, the International Institute of Public Finance Conference in Sweden in August 2010, and the European Economic Association Meeting in Scotland in August 2010.
Although many studies indicate that both the level and composition of public spending are significant for economic growth, the results in the empirical literature are mixed. This paper suggests that the country sample selection and expenditure classification are important in explaining these conflicting results. The empirical analysis shows that the link between growth and public spending, especially its core component, is strong only for countries with macroeconomic stability and fast GDP per capita growth dynamics, which are also capable of using public funds for productive purposes.