The Nexus between Economic Growth and Public Spending in Eastern European Countries

  • Dan Lupu Alexandru Ioan Cuza University, Iasi, Romania
  • Mircea Asandului Alexandru Ioan Cuza University, Iasi, Romania
Keywords: public expenditure, economic growth, Eastern European countries, ARDL model, Armey curve

Abstract

In this study we will analyze the relationship between governmental expenditure and economic growth rate for 8 Eastern-European countries using data between 1995-2014. The main goal of the present study is to test whether there is or there is not an inversed U-curve type relationship between public spending and economic growth as well as to find an optimal level of public spending which maximizes economic growth. The econometric method used in this study is the ARDL model, while the empirical observations show that the present weight of public spending within the GDP exceeds the optimal level calculated for the three countries for which the Armey-type phenomenon occurs. Based on the study results, a proposal for an economic policy could be the fact that the weight of public expenditure should be reduced while the efficiency of public spending programs should be increased.

DOI: http://dx.doi.org/10.5755/j01.ee.28.2.7734

Author Biographies

Dan Lupu, Alexandru Ioan Cuza University, Iasi, Romania
department of Finance and Money, Assistant Professor
Mircea Asandului, Alexandru Ioan Cuza University, Iasi, Romania
Department of Statistics, Assistant Professor
Published
2017-04-25
Section
ECONOMICS OF ENGINEERING DECISIONS