Government Expenditure and Economic Growth: Analyzing the Effects of Government Spending on Public Goods, Infrastructure, Healthcare, Education, and its Long-Term Impact on Economic Growth

Abstract

This study empirically investigates the impact of government expenditure on economic growth. It is in the context of spending on education, health, investment, and trade openness. Using panel data analysis, for 15 selected countries, both developed and developing, over a defined time period of 2010-23. The approach uses 'Pooled OLS', 'Fixed Effects (FE)', and 'Random Effects (RE)' models. Diagnostic tests backing these models include 'panel unit root', 'Pedroni and Kao' cointegration, and the 'Hausman' specification test. The findings show that economic growth is considerably and favorably influenced by education, health, and investment. However, the trade openness, although positive, shows a statistically weaker effect. Model selection tests confirm the Fixed Effects model as the most appropriate estimator. The findings underscore the importance of targeted public spending in human capital and infrastructure. It will help foster long-term economic development. Based on the analysis, the study offers policy recommendations that emphasize enhanced investment in social sectors. Further, improved regulatory frameworks for capital formation, and more strategic trade integration policies will help boost the economic progress.