Effect of Government Spending on Economic Growth for Sub- Saharan Africa

Abstract

Governments’ role in fostering accelerated economic growth is very significant and plays a key role in poverty reduction for most developing economies, for which most Sub-Sahara African countries are dominant. The effect of public spending on economic growth with its attending policy implications has ignited the interest of researchers both theoretically and empirically. The study set out to determine the effect of total government spending on economic growth in Sub-Saharan Africa. The study used pooled OLS, Fixed and Random effects together with system GMM panel estimation technique to model the relationship between government expenditure and economic growth. Control variables like official development assistance, foreign direct investment, trade, debt, capital, labour force and household consumption were also included in the model. The study found a positive relationship between government expenditure and economic growth. Also, a positive relationship was found between economic growth and trade openness, foreign direct investment, consumption, capital and labour force while ODA was found to be negatively related to economic growth. The study recommends that governments should embark on expansionary fiscal policies in the form of investing in infrastructure particularly investing in human capital which in turn will increases the productivity of labour leading to economic growth. Government promotion of more trade liberalisation policies in order to increase import and exports is recommended. Also, deliberate attempt should be made to ensure that economies attract foreign direct investment. Governments should endeavour to reduce the effect of aid on economic growth by reducing the over reliance on aid and finding alternative way of funding government infrastructure.