The Relation Between Government Expenditures and Economic Growth: An Empirical Analysis in European Developing Countries

Abstract

The relationship between government expenditures and economic growth has become a significant consideration by many researchers in recent years, especially after the financial crisis of 2008-2009 and the spread of the COVID-19 pandemic. Therefore, earlier studies show different results regarding the impact of government expenditures on economic growth. The primary purpose of this study is to examine the impact of government expenditures on economic growth. Specifically, it aims to elucidate how a potential increase in government expenditure may influence overall economic growth. The study aims to deal with government expenditures over a long period, which includes data from 1995 to 2022. Econometric models are applied to test the impact of government expenditures on economic growth in developing European countries. To confirm the hypotheses, a comprehensive methodology based on several methods such as OLS, Fixed and Random Effects, Hausman Test, FMOLS, DOLS and GMM are applied. The results show a negative relationship between general government expenditures and economic growth, where the increase in government expenditures would have a negative effect on economic growth by -0.16% in developing European countries. Moreover, this study contributes to the governments of the respective countries by empirically investigating the correlation between government expenditures and economic growth.