EFFECT OF GOVERNMENT EXPENDITURE ON ECONOMIC GROWTH IN EAST AFRICA: PANEL DATA ANALYSIS

The goal of this research was to investigate empirically how government expenditure
contributes to economic growth in East Africa from 1980-2010. Using balanced panel fixed
effect model, government expenditure was disaggregated to scrutinize its effect of growth.
The study tested for panel unit root and found that only two variables, that is, GDP and
investment expenditure are stationary at level. The finding confirms the conventional view
that relative investment expenditure promotes economic growth while consumption retards it.
Finally, human capital expenditure was found to be insignificant. This study suggests that for
East Africa, the policy of increasing government expenditure on investment budget to
promote economic growth will be appropriate, but fewer funds should be channeled towards
other governmental programs.