Productivity of Government Spending and Test of Causality Between Government Expenditure and Economic Growth
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Date
1996-06
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A.A.U
Abstract
Government expenditure as one of major instrument of fiscal policy is now becoming
the growing concern in almost all countries. Countries who follow the world bank
sponsored structural adjustment program (SAP) need to revise their policy of public
spending . Ethiopia,being one of them , is going in restructuring its public resources
allocation. Thus policy makers need to know the productivity of public expenditure.
This paper deals with how public spending did behave for the last three to four
decades and test the causal relation between the growing public expenditure and national
income. Using Granger causality and Translog production function, the available Ethiopian
data show the presence of instantaneous bidirectional causal relation between growth of
real percapita income and government expenditure. The elasticity estimates of the translog
production function show government expenditure on human resource development and
capital expenditure have the greatest effect on economic growth. Hence,the new
government of Ethiopia has to give due consideration to these sectors' development when
it restructures the existing fiscal policy(expenditure restructuring).
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Keywords
Government Spending and Test, Test of Causality Between