Government expenditure, efficiency and economic growth: a panel analysis of Sub Saharan African low income countries

Abstract

This paper analyzes the impact of government expenditure and efficiency on economic growth of Sub Saharan African low income countries. The paper uses a panel data of 25 Sub-Saharan African low income countries spanning from 2002 – 2015 which are obtained from World Development Indicators (WDI) database. The paper executes panel unit root tests by using Im- Pesaran-Shin and Fisher ADF tests. The paper also uses Pedroni test to accomplish panel cointegration tests. Finally Generalized Methods of Moments (GMM) is applied to answer the two research questions. The results demonstrate that increasing government expenditure accelerates economic growth of low income countries in Sub Saharan Africa. However, when government expenditure is interacted with government efficiency we find no evidence for government efficiency to boost the impacts of government expenditure on economic growth. Fiscal policy makers in Sub Saharan African low income region should consider the rationale for using their spending to accelerate economic growth.

Keywords: Government expenditure, efficiency, economic growth, Sub Saharan Africa