Effect of Government Expenditure on Economic Growth in East Africa: A Disaggregated Model (#60426)

The goal of this research was to investigate empirically how government expenditure contributes to economic growth in East Africa. Most existing studies examining the relationship between expenditure and economic growth show conflicting results and mainly focus on aggregate expenditure. Hence this study focused on disaggregated expenditure over the period from 1980 to 2010. The objective of
the study was to establish these expenditures that have effects on growth using balanced panel fixed effect model. Employing LLC
test, this study tested for panel unit root and found that only GDP was stationary at level. The findings showed that expenditures on health and defense to be positive and statistically significant effect on growth. In contrast, education and agriculture expenditure were insignificant. This study suggests that for East Africa, the policy of increasing spending on health and defence budget to promote economic growth will be appropriate, but fewer funds should be channeled towards other sectors.