The Effect of Government Spending on the Economic Growth Rate: Empirical Evidence from Asian Tigers

Sammanfattning: In this paper, I use fixed effects model and random effects model first to estimate the effect of government spending on economic growth rate in the four Asian Tigers from 1981 to 2018, including Taiwan, Hong Kong, Singapore, and South Korea. Afterwards, the Hausman specification test determines that random effects model is more preferred in this scenario. Besides, due to the dynamic panel bias and endogeneity bias latent in the two models, I further adopt the generalized method of moments technique to deal with the potential problem. The empirical result indicates that the increase in the share of GDP for both government social spending and government public investment will have significantly negative influences on the economic growth rate in the next year. Nevertheless, the relationship between government consumption spending and the subsequent economic growth rate is not significant at any confidence levels.