The Impact of Government Expenditures, Gross Capital Formation, Trade, and Portfolio Investment on the Economic Growth of Asean Economies

Abstract

This paper examines the impact of public spending on ASEAN-5 countries economic development. The purpose of this study is to provide evidence, reference and contribute to the knowledge about government spending and economic growth. This study involves ASEAN-5 countries. The countries are Thailand, Singapore, Indonesia, Philippines and Malaysia. The countries are chosen because there is a lack of study of government expenditure for ASEAN-5 countries using panel data. The data covers from year 1990 to 2014. The data is retrieved from the World Development Indicators (World Bank). The dependent variable is gross domestic product (GDP). GDP is used to measure economic growth. The main independent variable is government expenditure. The other independent variables are gross capital formation, portfolio investment, labor, trade, total reserve and gross savings. A clear understanding about inter-linkages between government spending and economic growth will help the government in making better decision for the country. As ASEAN countries have responsibility for ASEAN Economic Community (AEC) Blueprint 2025 to meet its objectives, ASEAN governments are expected to effectively monitor the public spending as fiscal instrument in stimulating economic growth. Government expenditure may become unproductive if misallocating and using it in excess. From this study, there is evidence that government expenditure has impact on economic growth. Future research is expected to expand the investigation to other composition of government spending such as education, defense and infrastructure expenditures instead of using general government final consumption expenditures.

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