The effectiveness of government expenditure on economic growth in Botswana

Abstract

Purpose The purpose of this paper is to examine the relationship between government expenditure and economic growth in Botswana over the period 1985‒2016. The study employed the auto-regressive distributed lag (ARDL) bounds testing approach in investigating the nexus. The study makes the argument that the effectiveness of public spending should be assessed not only against the amount of the expenditure but also by the type of the expenditure. The empirical findings showed that aggregate expenditure has a negative short-run and positive long-run effect on economic growth. When expenditure is disaggregated, both forms of expenditures have a positive short-run effect on economic growth, whereas only a long-run positive impact of recurrent expenditure is observed. The study suggests the need to prioritize scarce resources in productive recurrent and development spending that enables increased productivity. Design/methodology/approach This study examined the effectiveness of government spending in Botswana, within an ARDL framework from 1985 to 2016. To achieve this, the analysis is carried out on both an aggregate and disaggregated level. Government spending is divided into recurrent and development expenditures. Findings This study examined the effectiveness of government spending in Botswana, within an ARDL framework from 1985 to 2016. To achieve this, the analysis hinged on both the aggregate and disaggregated levels. The results of the aggregate analysis suggest that total public expenditure has a negative impact on economic growth in the short run; however, its impact becomes positive over the long run. On disaggregating government spending, the results show that both recurrent and development expenditures have a significant positive short-run impact on growth; however, in the long run, the significant positive impact is only observed for recurrent expenditure. Practical implications The results provide evidence of the diverse effects of government expenditure in the country. In the period under investigation, 73 percent of total government expenditure in Botswana was recurrent in nature, whereas 23 percent was related to development. From the results, it can be observed that although the recurrent expenditure has contributed to increased growth and must be encouraged, it is also pertinent for the Botswana Government to endeavor to place more emphasis on productive development expenditure in order to enhance short- and long-term growth. Further, there is a need to strengthen the growth-enhancing structures and to prioritize the scarce economic resources toward productive spending and ensuring continued proper governance over such expenditures. Originality/value The study provides empirical evidence on the effectiveness of government spending in a small open, resource-reliant middle-income SSA economy and argues that the effectiveness of public spending must be assessed not only against the amount of the expenditure but also on the type or composition of the expenditure. The study contributes to the scant empirical literature on Botswana by employing the ARDL approach to cointegration technique in estimating the long- and short-run impact of government expenditure on economic growth between 1985 and 2016.

Determinants of Indonesia’s National Income: An Auto-Regressive Distributed Lag Analysis

“…Different results are shown by the government expenditure (GE) variable, which has a negative but not significant effect in the long run on Indonesia's national income in 2010-2019. This result is not in line with the research of Wu et al (2010), Musa & Jelilov (2016), Dudzevičiūtė et al (2017), Amusa & Oyinlola (2019) which found that government expenditure has a positive effect on economic growth in the long run. The influence of government spending on economic growth in this study has the same direction as the research results from Hasnul (2015) and Okoye et al (2019).…”

“…In the short-run, all independent variables influence economic growth. In short-term, household consumption and government expenditure have a positive effect on economic growth, which shows the same results as the research from Wang et al, 2016;Petkova, 2019;Alper, 2018;Sun & Deng (2013), but not in line with the research by Amusa & Oyinlola (2019) and Okoye et al (2019) which shows that in the short-run government expenditure has a negative effect to economic growth. Different results show by investment and net export variables, which negatively affect the short-run economic growth in Indonesia in 2010-2019.…”

“…Over the past ten years, there has been considerable academic interest in examining the relationship between aggregate demand (household consumption, investment, government spending, and net export) and economic growth (e.g., Zouhaier & Karim, 2012;Frank et al, 2014;Wang et al, 2016;Musa & Jelilov, 2016;Sultanuzzaman et al, 2019;Bakari, 2017;Sunde, 2017;Aslam, 2017;Nguyen, 2017, Fatemah & Qayyum, 2018Alper, 2018;Petkova, 2019;Amusa & Oyinlola, 2019). Keynes's macroeconomic model shows the vital role of aggregate demand in determining a country's economic activity level.…”

The Impact of Islamic Bank Financing, Government Spending, and Investment on Economic Growth in Indonesia

“…However, in the long term, the significant positive impact is experienced only in recurring spending. This proves that the effectiveness of government spending in the economy is dependent on resources and the effectiveness of public spending, which has to be assessed not only on its amount but also on the composition type (Amusa & Oyinlola, 2019).…”

“…Therefore, to maintain economic stability, state consistency is required to increase the amount of consumption, government spending, exports, and investment (Muazi & Arianti, 2013). For disaggregated government spending, Amusa & Oyinlola's (2019) observed that both routine and development spending have a significant, short-term positive impact on growth. However, in the long term, the significant positive impact is experienced only in recurring spending.…”