International Journal of

ADVANCED AND APPLIED SCIENCES

EISSN: 2313-3724, Print ISSN: 2313-626X

Frequency: 12
line decor
  
line decor

 Volume 11, Issue 3 (March 2024), Pages: 92-101

----------------------------------------------

 Original Research Paper

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

 Author(s): 

 Hanane Abdelli 1, *, Zouheyr Gheraia 1, Habib Sekrafi 2, Mehdi Abid 3

 Affiliation(s):

 1Department of Business Management, College of Business, Jouf University, Skaka, Saudi Arabia
 2Laboratory for the Valorization of Natural and Cultural Heritage (VPNC), University of Jendouba, Jendouba, Tunisia
 3Department of Finance and Investment, College of Business, Jouf University, Skaka, Saudi Arabia

 Full text

  Full Text - PDF

 * Corresponding Author. 

  Corresponding author's ORCID profile: https://orcid.org/0000-0003-0217-885X

 Digital Object Identifier (DOI)

 https://doi.org/10.21833/ijaas.2024.03.010

 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.

 © 2024 The Authors. Published by IASE.

 This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

 Keywords

 Economic development, Government expenditure, GDP, NARDL model, Trade openness and FDI

 Article history

 Received 2 November 2023, Received in revised form 15 February 2024, Accepted 19 February 2024

 Acknowledgment 

No Acknowledgment.

 Compliance with ethical standards

 Conflict of interest: The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

 Citation:

 Abdelli H, Gheraia Z, Sekrafi H, and Abid M (2024). The asymmetric impact of government expenditure on economic growth: Evidence from a NARDL model. International Journal of Advanced and Applied Sciences, 11(3): 92-101

 Permanent Link to this page

 Figures

 No Figure

 Tables

 Table 1 Table 2 Table 3

----------------------------------------------   

 References (68)

  1. Abid M (2016). Impact of economic, financial, and institutional factors on CO2 emissions: Evidence from sub-Saharan Africa economies. Utilities Policy, 41: 85-94. https://doi.org/10.1016/j.jup.2016.06.009   [Google Scholar]
  2. Adeniyi O, Oyinlola A, Omisakin O, and Egwaikhide FO (2015). Financial development and economic growth in Nigeria: Evidence from threshold modelling. Economic Analysis and Policy, 47: 11-21. https://doi.org/10.1016/j.eap.2015.06.003   [Google Scholar]
  3. Afonso A and Carvalho FT (2022). Time-varying cyclicality of fiscal policy: The case of the Euro area. The North American Journal of Economics and Finance, 62: 101778. https://doi.org/10.1016/j.najef.2022.101778   [Google Scholar]
  4. Ahmed AD and Mmolainyane KK (2014). Financial integration, capital market development and economic performance: Empirical evidence from Botswana. Economic Modelling, 42: 1-14. https://doi.org/10.1016/j.econmod.2014.05.040   [Google Scholar]
  5. Akpan NI (2005). Government expenditure and economic growth in Nigeria: A disaggregated approach. Economic and Financial Review, 43(1): 51-69.   [Google Scholar]
  6. Alshammary MD, Khali N, Karim ZA, and Ahmad R (2022). Government expenditures and economic growth in the MENA region: A dynamic heterogeneous panel estimation. International Journal of Finance and Economics, 27(3): 3287-3299. https://doi.org/10.1002/ijfe.2321   [Google Scholar]
  7. Amna RI, Yaseen MR, Kousar R, Usman M, and Makhdum MSA (2020). Impact of trade openness and human capital on economic growth: A comparative investigation of Asian countries. Sustainability, 12(7): 2930. https://doi.org/10.3390/su12072930   [Google Scholar]
  8. Aregbeyen O and Kolawole BO (2015). Oil revenue, public spending and economic growth relationships in Nigeria. Journal of Sustainable Development, 8(3): 113-123. https://doi.org/10.5539/jsd.v8n3p113   [Google Scholar]
  9. Ashipala J and Haimbodi N (2003). The impact of public investment on economic growth in Namibia. Namibian Economic Policy Research Unit, Windhoek, Namibia.   [Google Scholar]
  10. Asimakopoulos S and Karavias Y (2016). The impact of government size on economic growth: A threshold analysis. Economics Letters, 139: 65-68. https://doi.org/10.1016/j.econlet.2015.12.010   [Google Scholar]
  11. Aznan MSBM, Goh HH, Koong SS, and Tan SH (2022). Nonlinear threshold approach for asymmetric effects of government size on economic growth in an emerging Asian economy: The Malaysian experience. Heliyon, 8(9): e10524. https://doi.org/10.1016/j.heliyon.2022.e10524   [Google Scholar] PMid:36105476 PMCid:PMC9465109
  12. Banerjee A, Dolado J, and Mestre R (1998). Error‐correction mechanism tests for cointegration in a single‐equation framework. Journal of Time Series Analysis, 19(3): 267-283. https://doi.org/10.1111/1467-9892.00091   [Google Scholar]
  13. Batuo M, Mlambo K, and Asongu S (2018). Linkages between financial development, financial instability, financial liberalisation and economic growth in Africa. Research in International Business and Finance, 45: 168-179. https://doi.org/10.1016/j.ribaf.2017.07.148   [Google Scholar]
  14. Belloumi M (2014). The relationship between trade, FDI and economic growth in Tunisia: An application of the autoregressive distributed lag model. Economic Systems, 38(2): 269-287. https://doi.org/10.1016/j.ecosys.2013.09.002   [Google Scholar]
  15. Benkraiem R, Lahiani A, Miloudi A, and Shahbaz M (2019). The asymmetric role of shadow economy in the energy-growth nexus in Bolivia. Energy Policy, 125: 405-417. https://doi.org/10.1016/j.enpol.2018.10.060   [Google Scholar]
  16. Benoit E (1978). Growth and defense in developing countries. Economic Development and Cultural Change, 26(2): 271-280. https://doi.org/10.1086/451015   [Google Scholar]
  17. Bensoltane H (2023). Price behavior of small and medium enterprises on the Saudi stock exchange in the face of market illiquidity. International Journal of Advanced and Applied Sciences, 10(6): 113-118. https://doi.org/10.21833/ijaas.2023.06.014   [Google Scholar]
  18. Bergh A and Henrekson M (2011). Government size and growth: A survey and interpretation of the evidence. Journal of Economic Surveys, 25(5): 872-897. https://doi.org/10.1111/j.1467-6419.2011.00697.x   [Google Scholar]
  19. Boudia F and Ben Zidane F (2013). The role of public investment in the higher education sector in achieving economic growth: A standard study for Algeria, Saudi Arabia, and Jordan using the Panel data. In Proceedings of the Evaluating the Effects of Public Investment Programs and Their Implications for Employment, Investment and Economic Growth during the Period 2001–2014, Setif, Algeria.   [Google Scholar]
  20. Calderón C and Liu L (2003). The direction of causality between financial development and economic growth. Journal of Development Economics, 72(1): 321-334. https://doi.org/10.1016/S0304-3878(03)00079-8   [Google Scholar]
  21. Connolly M and Li C (2016). Government spending and economic growth in the OECD countries. Journal of Economic Policy Reform, 19(4): 386-395. https://doi.org/10.1080/17487870.2016.1213168   [Google Scholar]
  22. d’Agostino G, Pieroni L, and Scarlato M (2018). Further evidence of the relationship between social transfers and income inequality in OECD countries. ECINEQ Working Paper 2018–482, Society for the Study of Economic Inequality, Palma de Mallorca, Spain.   [Google Scholar]
  23. Dickey DA and Fuller WA (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica: Journal of the Econometric Society, 49(4): 1057-1072. https://doi.org/10.2307/1912517   [Google Scholar]
  24. Dinh QT, Nguyen MT, Quach HT, VO QTT, and Nguyen V (2023). The impacts of technological innovation and institutional quality on the productivity of Vietnamese manufacturing firms. International Journal of Advanced and Applied Sciences, 10(9): 139-149. https://doi.org/10.21833/ijaas.2023.09.016   [Google Scholar]
  25. Dudzevičiūtė G, Šimelytė A, and Liučvaitienė A (2018). Government expenditure and economic growth in the European Union countries. International Journal of Social Economics, 45(2): 372-386. https://doi.org/10.1108/IJSE-12-2016-0365   [Google Scholar]
  26. Fan S and Rao N (2003). Public spending in developing countries: Trend, determination and impact. EPTD Discussion Paper No. 99, International Food Policy Research Institute, Washington, D.C., USA.   [Google Scholar]
  27. Feng H, Liu Z, Wu J, Iqbal W, Ahmad W, and Marie M (2022). Nexus between government spending’s and green economic performance: Role of green finance and structure effect. Environmental Technology and Innovation, 27: 102461. https://doi.org/10.1016/j.eti.2022.102461   [Google Scholar]
  28. Hajamini M and Falahi MA (2018). Economic growth and government size in developed European countries: A panel threshold approach. Economic Analysis and Policy, 58: 1-13. https://doi.org/10.1016/j.eap.2017.12.002   [Google Scholar]
  29. Hamdi H and Sbia R (2013). Dynamic relationships between oil revenues, government spending and economic growth in an oil-dependent economy. Economic Modelling, 35: 118-125. https://doi.org/10.1016/j.econmod.2013.06.043   [Google Scholar]
  30. Jalil A and Feridun M (2011). Impact of financial development on economic growth: Empirical evidence from Pakistan. Journal of the Asia Pacific Economy, 16(1): 71-80. https://doi.org/10.1080/13547860.2011.539403   [Google Scholar]
  31. Jalles JT (2021). Dynamics of government spending cyclicality. Economic Modelling, 97: 411-427. https://doi.org/10.1016/j.econmod.2020.04.010   [Google Scholar]
  32. Joshua U (2019). An ARDL approach to the government expenditure and economic growth nexus in Nigeria. Academic Journal of Economic Studies, 5(3): 152-160.   [Google Scholar]
  33. Khalid MA and Noor ZM (2018). Military expenditure and economic growth in developing countries: Evidence from system GMM estimates. Journal of Emerging Trends in Economics and Management Sciences, 9(2): 90-98.   [Google Scholar]
  34. Khemili H and Belloumi M (2018). Cointegration relationship between growth, inequality and poverty in Tunisia. International Journal of Applied Economics, Finance and Accounting, 2(1): 8-18. https://doi.org/10.33094/8.2017.2018.21.8.18   [Google Scholar]
  35. Khorasgani MF (2008). Higher education development and economic growth in Iran. Education, Business and Society: Contemporary Middle Eastern Issues, 1(3): 162-174. https://doi.org/10.1108/17537980810909788   [Google Scholar]
  36. Kim T and Nguyen QH (2020). The effect of public spending on private investment. Review of Finance, 24(2): 415-451.   [Google Scholar]
  37. Kwiatkowski D, Phillips PC, Schmidt P, and Shin Y (1992). Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root? Journal of Econometrics, 54(1-3): 159-178. https://doi.org/10.1016/0304-4076(92)90104-Y   [Google Scholar]
  38. Lakshmanan TR (2011). The broader economic consequences of transport infrastructure investments. Journal of Transport Geography, 19(1): 1-12. https://doi.org/10.1016/j.jtrangeo.2010.01.001   [Google Scholar]
  39. Larch M, Orseau E, and Van Der Wielen W (2021). Do EU fiscal rules support or hinder counter-cyclical fiscal policy? Journal of International Money and Finance, 112: 102328. https://doi.org/10.1016/j.jimonfin.2020.102328   [Google Scholar]
  40. Liao L, Du M, Wang B, and Yu Y (2019). The impact of educational investment on sustainable economic growth in Guangdong, China: A cointegration and causality analysis. Sustainability, 11(3): 766. https://doi.org/10.3390/su11030766   [Google Scholar]
  41. Malizard J (2010). Causality between economic growth and military expenditure: The case of France. Defense and Security Analysis, 26(4): 401-413. https://doi.org/10.1080/14751798.2010.534648   [Google Scholar]
  42. Mann VA (1980). Influence of preceding liquid on stop-consonant perception. Perception and Psychophysics, 28(5): 407-412. https://doi.org/10.3758/BF03204884   [Google Scholar] PMid:7208250
  43. Michel S (2015). Education in Thailand: When economic growth is no longer enough. London Review of Education, 13(3): 79-91. https://doi.org/10.18546/LRE.13.3.11   [Google Scholar]
  44. Musila JW and Yiheyis Z (2015). The impact of trade openness on growth: The case of Kenya. Journal of Policy Modeling, 37(2): 342-354. https://doi.org/10.1016/j.jpolmod.2014.12.001   [Google Scholar]
  45. Narayan PK and Singh B (2007). Modelling the relationship between defense spending and economic growth for the Fiji Islands. Defence and Peace Economics, 18(4): 391-401. https://doi.org/10.1080/10242690600807924   [Google Scholar]
  46. Nawaz M, Arif U, and Qureshi IH (2019). Impact of temperature dependent diffusion coefficients on heat and mass transport in viscoelastic liquid using generalized Fourier theory. Physica Scripta, 94(11): 115206. https://doi.org/10.1088/1402-4896/ab1cec   [Google Scholar]
  47. Ntiga N and Henri L (2022). Non-linear effects of fiscal policy on economic economic growth in Cameroon. MPRA Paper No. 114380, Munich Personal RePEc Archive, Munich, Germany.   [Google Scholar]
  48. Nyasha S and Odhiambo NM (2017). Banks, stock market development and economic growth in Kenya: An empirical investigation. Journal of African Business, 18(1): 1-23. https://doi.org/10.1080/15228916.2016.1216232   [Google Scholar]
  49. Nyasha S and Odhiambo NM (2019). Government size and economic growth: A review of international literature. SAGE Open, 9(3). https://doi.org/10.1177/2158244019877200   [Google Scholar]
  50. Oladosu AO, Chanimbe T, and Anaduaka US (2022). Effect of public health expenditure on health outcomes in Nigeria and Ghana. Health Policy OPEN, 3: 100072. https://doi.org/10.1016/j.hpopen.2022.100072   [Google Scholar] PMid:37383572 PMCid:PMC10297781
  51. Olaoye OO, Eluwole OO, Ayesha A, and Afolabi OO (2020). Government spending and economic growth in ECOWAS: An asymmetric analysis. The Journal of Economic Asymmetries, 22: e00180. https://doi.org/10.1016/j.jeca.2020.e00180   [Google Scholar]
  52. Olayungbo DO and Olayemi OF (2018). Dynamic relationships among non-oil revenue, government spending and economic growth in an oil producing country: Evidence from Nigeria. Future Business Journal, 4(2): 246-260. https://doi.org/10.1016/j.fbj.2018.07.002   [Google Scholar]
  53. Onodugo VA, Obi KO, Anowor OF, Nwonye NG, and Ofoegbu GN (2017). Does public spending affect unemployment in an emerging market. Risk Governance and Control: Financial Markets and Institutions, 7(1): 32-40. https://doi.org/10.22495/rgcv7i1art4   [Google Scholar]
  54. Osathanunkul R, Dumrong P, Yamaka W, and Maneejuk P (2023). The nonlinear impacts of aging labor and government health expenditures on productivity in ASEAN+ 3 economies. Economic Analysis and Policy, 80: 450-470. https://doi.org/10.1016/j.eap.2023.08.021   [Google Scholar]
  55. Pesaran MH, Shin Y, and Smith RJ (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3): 289-326. https://doi.org/10.1002/jae.616   [Google Scholar]
  56. Pula L and Elshani A (2018). The relationship between public expenditure and economic growth in Kosovo: Findings from a Johansen co-integrated test and a Granger causality test. Ekonomika, 97(1): 47-62. https://doi.org/10.15388/Ekon.2018.1.11778   [Google Scholar]
  57. Räsänen J and Mäkelä E (2021). The effect of government spending on local economies during an economic downturn. European Economic Review, 134: 103697. https://doi.org/10.1016/j.euroecorev.2021.103697   [Google Scholar]
  58. Saba SC and Ngepah N (2019). Military expenditure and economic growth: Evidence from a heterogeneous panel of African countries. Economic Research-Ekonomska istraživanja, 32(1): 3586-3606. https://doi.org/10.1080/1331677X.2019.1674179   [Google Scholar]
  59. Sadik AT and Bolbol AA (2001). Capital flows, FDI, and technology spillovers: Evidence from Arab countries. World Development, 29(12): 2111-2125. https://doi.org/10.1016/S0305-750X(01)00083-3   [Google Scholar]
  60. Selvanathan EA, Selvanathan S, and Jayasinghe MS (2021). Revisiting Wagner’s and Keynesian’s propositions and the relationship between sectoral government expenditure and economic growth. Economic Analysis and Policy, 71: 355-370. https://doi.org/10.1016/j.eap.2021.05.005   [Google Scholar]
  61. Shahbaz M and Lean HH (2012). Does financial development increase energy consumption? The role of industrialization and urbanization in Tunisia. Energy Policy, 40: 473-479. https://doi.org/10.1016/j.enpol.2011.10.050   [Google Scholar]
  62. Shahbaz M, Van Hoang TH, Mahalik MK, and Roubaud D (2017). Energy consumption, financial development and economic growth in India: New evidence from a nonlinear and asymmetric analysis. Energy Economics, 63: 199-212. https://doi.org/10.1016/j.eneco.2017.01.023   [Google Scholar]
  63. Shin Y, Yu B, and Greenwood-Nimmo M (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In: Sickles R and Horrace W (Eds.), Festschrift in honor of Peter Schmidt: Econometric methods and applications: 281-314. Springer, New York, USA. https://doi.org/10.1007/978-1-4899-8008-3_9   [Google Scholar]
  64. Straub S (2008). Infrastructure and growth in developing countries: Recent advances and research challenges. Working Paper NO. 4460, World Bank, Washington D.C., USA. https://doi.org/10.1596/1813-9450-4460   [Google Scholar]
  65. Yelma M, Danlami AM, and Obansa SAJ (2014). Sectorial analysis of public expenditure and economic growth in Nigeria: 1982–2012. Journal of Economics and Sustainable Development, 5(12): 166-175.   [Google Scholar]
  66. Yovo K (2017). Public expenditures, private investment and economic growth in Togo. Economics Letters, 7: 193-209. https://doi.org/10.4236/tel.2017.72017   [Google Scholar]
  67. Yusuf A and Mohd S (2021). Asymmetric impact of fiscal policy variables on economic growth in Nigeria. Journal of Sustainable Finance and Investment. https://doi.org/10.1080/20430795.2021.1927388   [Google Scholar]
  68. Zivot E and Andrews DWK (1992). Further evidence on the great crash, the oil price shock, and the unit root hypothesis. Journal of Business and Economic Statistics 10(3): 251–270. https://doi.org/10.1080/07350015.1992.10509904   [Google Scholar]