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Government Expenditure and Economic Growth in a Small Open Economy

This paper provides empirical evidence on the relationship between the components of government expenditure and economic growth in Barbados. Both the Dynamic Ordinary Least Squares and the Unrestricted Error Correction Model were employed to analyse time series data spanning from 1976-2011. Generally the findings suggest that total government spending produces a drag on economic growth, particularly in the short-run, with a much smaller impact over time. More specifically the results indicate that while outlays on health and social security have little influences on per capita economic growth; government expenditure on education typically has a significant and negative impact on growth, both in the long and short runs. In addition, reallocations of government spending from one component to another may have growth-enhancing effects without having to change the level of government spending.

Government Expenditure and Economic Growth in a Small Open Economy_A Disaggregated Approach