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Government size and economic growth:A review of international literature

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  • Nyasha, Sheilla
  • Odhiambo, Nicholas M
Abstract
In this paper, we survey the existing literature on the causal relationship between government sizeand economic growth, highlighting the theoretical and empirical evidence from topical work.Although some previous studies have endeavoured to conduct a survey on the existing research onthe causal relationship between government size and economic growth, the majority of thesestudies have focused on the impact of the two macroeconomic variables and failed to providecoverage on the causality aspect of their relationship. To our knowledge, this may well be the firststudy of its kind to survey, in detail, the existing literature on the causal relationship betweengovernment size and economic growth ? in all the countries, whether developing or developed. Byand large, our study shows that direction of causality between these two variables has fourpossible outcomes; and that all the outcomes have found empirical support, based on variationsin the country or region under study, methodology, proxies, data set used and time frameconsidered. However, of the four, the most prominent is the second view, which validatesunidirectional Granger-causality from economic growth to government size, followed by thebidirectional Granger-causality category. The study, therefore, concludes that the causalrelationship between government size and economic growth is not clear-cut.

Suggested Citation

  • Nyasha, Sheilla & Odhiambo, Nicholas M, 2019. "Government size and economic growth:A review of international literature," Working Papers 25740, University of South Africa, Department of Economics.
    • Handle: RePEc:uza:wpaper:25740
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    References listed on IDEAS

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    Cited by:

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    4. Oladele Oladipo OJO & Prof. S. A. S. ARUWA & Eugene Obumneme CHUKWUMA, 2024. "Effect of Productive Expenditure on Economic Growth of Nigeria as Moderated by Public Debt," International Journal of Research and Scientific Innovation, International Journal of Research and Scientific Innovation (IJRSI), vol. 11(9), pages 817-830, September.
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    8. Saccone, Donatella & Posta, Pompeo Della & Marelli, Enrico & Signorelli, Marcello, 2022. "Public investment multipliers by functions of government: An empirical analysis for European countries," Structural Change and Economic Dynamics, Elsevier, vol. 60(C), pages 531-545.
    9. Guo, Wen & Yang, Bo & Ji, Jiong & Liu, Xiaorui, 2023. "Abundance of natural resources, government scale and green economic growth: An empirical study on urban resource curse," Resources Policy, Elsevier, vol. 87(PA).
    10. Ciro Bazán & Víctor Josué Álvarez-Quiroz & Yennyfer Morales Olivares, 2022. "Wagner’s Law vs. Keynesian Hypothesis: Dynamic Impacts," Sustainability, MDPI, vol. 14(16), pages 1-25, August.
    11. Khairunisah Rahmatullah & Azwardi & Sairuki Sukanto, 2022. "The Relationship between the Government Size and Economic Growth in South Sumatra," Oblik i finansi, Institute of Accounting and Finance, issue 3, pages 110-118, September.
    12. Yana Buravleva & Decai Tang & Brandon J. Bethel, 2021. "Incentivizing Innovation: The Causal Role of Government Subsidies on Lithium-Ion Battery Research and Development," Sustainability, MDPI, vol. 13(15), pages 1-16, July.
    13. Dedák, István, 2022. "Bérfelzárkózás Magyarországon - fikció vagy valóság? [Wage catch-up in Hungary: myth or reality?]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 425-450.
    14. Daxin Dong & Boyang Xu & Ning Shen & Qian He, 2021. "The Adverse Impact of Air Pollution on China’s Economic Growth," Sustainability, MDPI, vol. 13(16), pages 1-27, August.
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    Keywords

    Government Size; Government Expenditure; Economic Growth; Granger-Causality;
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