The asymmetric impact of government expenditure on economic growth: Evidence from a NARDL model

Abstract

Since the 2011 Revolution, Tunisia has faced significant economic development challenges. Government spending plays a crucial role in fostering economic growth. This study focuses on Tunisia from 1980 to 2022, considering factors like foreign direct investment (FDI), trade openness, capital, and labor. It particularly examines spending in four government sectors: agriculture, education, health, and military. Using the Non-linear Autoregressive Distributed Lag (NARDL) model, the study investigates how these sectoral government expenditures relate to Tunisia's gross domestic product (GDP). The findings suggest that the relationship between these factors and GDP is complex. For instance, increases in trade openness and FDI generally lead to GDP growth. Similarly, changes in the labor force impact GDP differently in the short and long term, with negative and positive changes eventually benefiting the economy, but positive changes can initially decrease GDP. The study also finds that government spending on agriculture and health positively affects GDP, whereas spending on military and education has a negative impact. To enhance government spending and stimulate economic growth in Tunisia, the study recommends addressing corruption, inefficiency, and waste. It emphasizes the importance of directing public funds towards infrastructure, particularly in the education and military sectors, to improve welfare and support productive activities.