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.
Rajkumar and Swaroop examine the role of governance, public spending on primary education governance-measured by level of corruption and quality becomes effective in increasing primary education of bureaucracy-and ask how it affects the relationship attainment. These findings have important implications between public spending and outcomes. Their main for enhancing the development effectiveness of public innovation is to see if differences in efficacy of public spending. The lessons are particularly relevant for spending can be explained by quality of governance. The developing countries, where public spending on authors find that public health spending lowers child and education and health is relatively low, and the state of infant mortality rates in countries with good governance.governance is often poor. The results also indicate that as countries improve their This paper-a product of Public Services, Development Research Group-is part of a larger effort in the group to better understand issues relating to effective service delivery. We thank Laura Schechter for useful comments and excellent research assistance. We received helpful comments from Roberta Gatti, Steve Knack, Lant Pritchett and seminar participants the World Bank.
, seminar participants at the World Bank, and three anonymous referees. Vinaya Swaroop acknowledges financial assistance from the World Bank (research grant RPO 679-76).
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.
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