What is it about?

This article aims at identifying the determinants of government expenditures in developing countries by placing emphasis on the political institutions and governance variables, which have not been addressed so much in the previous literature. Using a panel data analysis for 97 developing countries from the period 1984 to 2004, this study finds evidence that controlling for economic, social, and demographical factors, political institutions and governance variables significantly influences the consumption expenditure in developing countries.

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Why is it important?

Political institutional variables such as the type of political ruling and political power in the parliament positively influence consumption expenditure; on the contrary, governance variables such as corruption influence negatively. Furthermore, we find that autocratic governments with military ruling are not particularly accommodative toward consumption expenditures as the public spending significantly shrinks under military dictatorship compared with other forms of governance. In order to check the consistency of our findings, we ran alternative specifications as well as conducted extreme bound tests. Our results largely survived these tests showing the robustness of our findings.

Perspectives

The main contribution of this article is twofold. First, the article employs a richer set of specifications while giving emphasis on the role of politics, governance, and institution on government expenditure, which is a noteworthy contribution. Second, to show the robustness of the estimation, extreme bound analysis (EBA) has been conducted, which is a well-known practice in the growth literature but has not yet been applied in this literature.

Dr. Abu S. Shonchoy
New York University

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This page is a summary of: POLITICAL INSTITUTIONS, GOVERNANCE, AND CONSUMPTION EXPENDITURE IN DEVELOPING COUNTRIES: A PANEL DATA ANALYSIS, Contemporary Economic Policy, January 2016, Wiley, DOI: 10.1111/coep.12162.
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