Noting that the literature has focused on the link between the level of public expendi ture and growth, we derive conditions under which a change in the composition of expenditure leads to a higher steady-state growth rate of the economy. The conditions depend not just on the physical productivity of the different components of public expenditure but also on the initial shares. Using data from 43 developing countries over 20 years we show that an increase in the share of current expenditure has positive and statistically significant growth effects. By contrast, the relationship between the capital component of public expenditure and per-capita growth is negative. Thus, seemingly productive expenditures, when used in excess, could become unproductive. These results imply that developing-country governments have been misallocating public expenditures in favor of capital expenditures at the expense of current expenditures.

Noting that the literature has focused on the link between the level of public expendi ture and growth, we derive conditions under which a change in the composition of expenditure leads to a higher steady-state growth rate of the economy. The conditions depend not just on the physical productivity of the different components of public expenditure but also on the initial shares. Using data from 43 developing countries over 20 years we show that an increase in the share of current expenditure has positive and statistically significant growth effects. By contrast, the relationship between the capital component of public expenditure and per-capita growth is negative. Thus, seemingly productive expenditures, when used in excess, could become unproductive. These results imply that developing-country governments have been misallocating public expenditures in favor of capital expenditures at the expense of current expenditures.

We thank Bernhard Pachl, Ramona Schrepler (who did all of the programming) and Lars Siemers for excellent research assistance, and Alexandra Holten for the skilful and patient typing of a trying manuscript.We are also grateful to participants in several seminars at the World Bank for their valuable comments and suggestions, while absolving them of responsibility for any errors of opinion or analysis that remain. Finally, the opinions expressed in the paper are ours as individual scholars, and not necessarily those of our respective institutions.

While Africa may have overcome its growth tragedy, it is facing a statistical tragedy, in that the statistical foundations of the recent growth in per‐capita GDP and reduction in poverty are quite weak. In many countries, GDP accounts use old methods, population censuses are out of date, and poverty estimates are infrequent and often not comparable over time. The proximate reasons have to do with weak capacity, inadequate funding, and a lack of coordination of statistical activities. But the underlying cause may be the political sensitivity of these statistics, and some donors' tendency to go around countries' own National Statistical Development Strategies (NSDS). Greater openness and transparency of statistics, and a higher profile for the NSDS, possibly with “naming and shaming” of those who try to circumvent it, may help Africans turn around their statistical tragedy.

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The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished.

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