Government Size and Economic Growth: An Analysis of the Relationship for the Latin American Countries

• Main Authors: Galileo Flores Gaitan, 葛伽利
• Other Authors: Yir-Hueih Luh
• Format: Others
• Language: en_US
• Published: 2019
• Online Access: http://ndltd.ncl.edu.tw/handle/fbwp25

碩士 === 國立臺灣大學 === 農業經濟學研究所 === 107 === The debate about the role of the government in the economy has been present in academic and political fields for over a hundred years. Many researchers have contributed with empirical analysis to determine whether government expenditure has a positive or negative effect on the growth rate. The studies on this topic are not yet conclusive and, for the case of the Latin American region, the literature is limited. This master thesis attempts to contribute to this analysis, by implementing an empirical model to find the relationship between government expenditure and the growth rate. We found that the government expenditure has a negative effect on the growth rate. This means that the expansion of the government size will be detrimental for the economic growth. When the government expenditure is separated into consumption and investment, the category of government investment has no significant impact on economic growth rate. On the other hand, the government consumption has a negative and significant effect on growth. When government expenditure is separated into different sectors, most of the categories are not significant and the majority of the sectors have a negative effect on the growth rate. Finally, by implementing a threshold regression, evidence of non-linear relationship among government size and economic growth was found for a single threshold. Thus, when the investment grows over 10% of the GDP, the negative effect of the government expenditure on the growth rate is reduced, but it is still negative. Prior to the empirical findings, the hypothesis was that the threshold existed for the variable government expenditure, which means that this variable was supposed to show two different regimes where different effects of the government expenditure are seen.