Government Expenditure and Economic Growth in Lower Middle Income Countries in Sub-Saharan Africa: An Empirical Investigation

Abstract

The aim of this study is to investigate the impact of government expenditure on economic growth in some selected countries in Sub-Saharan Africa (SSA). The study besides focusing on the lower middle income countries in the region such as Cape Verde, Cameroon, etc.; it further examined the significance of oil receipts on growth via public expenditure. As a result, oil exporting countries were entered as dummies. The period of the study spanned from 1980 to 2015. Gross domestic product per capita was used as a proxy of growth; while general government expenditure (totals), investment (totals) and interest rate were used as regressors instrumenting oil exports. The study employed both static panel and Arellano and Bond (1991) GMM estimators. Results found long run relationship amongst the variables used in the study. Government expenditure, investment and oil exports were equally found to have impacted on growth in the region. Although, government expenditure has not contributed positively to economic growth in the region as it was negatively signed. Therefore, the study recommends that government expenditure should be properly disaggregated as a matter of priority between capital and recurrent expenditures in order to carefully situate its role on growth.