Government size and economic growth in African emerging economies: does the BARS curve exist?

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Government Size and Economic Growth in African Emerging Economies: Does the BARS Curve Exist? Lindokuhle Talent Zungu Faculty of Commerce, Administration and Law, Department of Economics University of Zululand, South Africa, E-mail address: talent.nomsa@ymail.com Lorraine Greyling Dean: Faculty of Commerce, Administration and Law, University of Zululand, South Africa E-mail address: greylingl@unizulu.ac.za Abstract Purpose - This study is aimed at testing the validity of the BARS theory, and determining the threshold level at which excessive government-expenditure hampers growth. The data from 10 African emerging economies from 1988 to 2019 was used. Design/methodology/approach - The methodology comprises several different stages. In the first stage, an LM-type test was employed to find the appropriate transition variable among all the candidate variables, to assess the linearity between government-expenditure and economic-growth and to find the sequence for selecting the order m of the transition function. The linearity test helped to identify the nature of the relationships between government-expenditure and economic-growth. In the second stage the model evaluation was tested using the WCB-LM test, to assess appropriateness of the model. Thirdly, the PSTR model with one regime was estimated to test the validity of the BARS curve. Findings - The results revealed evidence of nonlinear effects between government-expenditure and economic-growth, where the size of the government-spending was found to be a 27.84% share of GDP, above which government-expenditure caused growth to decline in African emerging economies. The findings combined into an inverted U-shape relationship, in line with the BARS theory. Originality - This study proposes that policy-makers ought to formulate prudent fiscal policies that encourage expenditure, which would improve growth for selected countries as their current level of spending is below the threshold. This might be done through: (i) a suitable investment portfolio and (ii) spending more on infrastructure Keywords: economic -growth, government-size, PSTR model, African emerging economies

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