Government expenditure and economic growth: Evidence from panel data

The impact of government expenditure on economic growth was first investigated empirically by Adolf Wagner. Wagner suggests that there is a causal relationship between government spending and economic development. Government expenditure is considered as the outcome of economic activities. However, Keynesian hypothesis agrees that the causality direction runs from government expenditure to economic activities. This paper is important to reveal a clear understanding to policy makers and governments about inter-linkages between government spending and economic growth. Using Panel Data approach, the study examines the impact of government expenditure on economic growth for ASEAN-5 countries and investigates the causal relationship between the variables. The result shows that government expenditure has a positive significant relationship with economic growth. Government should ensure that expenses of the governments are properly managed. A proper managed government budget will be benefit to productivity of the country. For future research, both quantitative and qualitative data should be used to explain the relationship between government expenditure and economic growth