Government spending and economic growth in the Middle East and North Africa region
| Author | Bassam Abdullah Albassam |
| DOI | http://doi.org/10.1177/0020852320969802 |
| Published date | 01 December 2022 |
| Date | 01 December 2022 |
| Subject Matter | Articles |
Article
Government spending
and economic growth
in the Middle East and
North Africa region
Bassam Abdullah Albassam
King Saud University, Saudi Arabia
Abstract
In 2011, during the Arab Spring, citizens in some Arab countries marched in the streets,
demanding decreased corruption, increased public participation in running state affairs,
and provision of jobs for citizens. In response, governments in the Middle East and
North Africa region initiated strategic plans to meet the people’s demands (e.g.
Morocco Vision 2030, Saudi Vision 2030). One of the main parts of these plans is
related to reforming the public finance sector. Recently, in response to the novel
coronavirus (COVID-19) pandemic, most Middle East and North Africa countries
have taken loans or withdrawn from reserves (both considered sources of funding
for government expenditures) to support the economy and fund the healthcare
plans to fight the disease. Thus, the efficiency and effectiveness of government spending
is very important in utilizing the available resources at all times. Using data for the
Middle East and North Africa region from 1990 to 2019, and utilizing a scatterplot
technique and the general linear modeling procedure, this article explores the relation-
ship between public expenditures and economic growth. The results show that the
current public expenditure system is inefficient and that efficient public spending has to
be combined with other factors that influence the economy (e.g. enhancing public
participation in running state affairs, controlling corruption, and supporting good gov-
ernance practices in the public sector).
Points for practitioners
Government spending is one of the most important elements in managing state affairs
toward achieving advanced levels of development and providing high-quality services to
Corresponding author:
Bassam Abdullah Albassam, Department of Public Administration, King Saud University,Riyadh, Saudi Arabia.
Email: Balbassam1@ksu.edu.sa
International Review of Administrative
Sciences
!The Author(s) 2020
Article reuse guidelines:
sagepub.com/journals-permissions
DOI: 10.1177/0020852320969802
journals.sagepub.com/home/ras
2022, Vol. 88(4) 1124–1140
International
Review of
Administrative
Sciences
beneficiaries. This research explores the relationship between government spending
and economic growth; the result of this study confirms that non-financial factors,
such as fighting corruption, promoting democracy and freedom, enhancing public insti-
tutions’ quality, and supporting the productivity and accountability of the public
sector, are important dimensions in promoting economic growth, especially in devel-
oping countries.
Keywords
economic growth, government effectiveness, Middle East and North Africa, public
expenditure efficiency, public policies
Introduction
The efficiency of government spending is a key issue in political and academic
debates, regardless of the development level of a nation. Budget allocations for
public services and programs are of public concern because they influence the
quality of services introduced to people. Many schools of thought have discussed
the importance of public spending to the status of a country’s economic develop-
ment, including classical economic theory, Wagner’s law, and Keynesian theory
and its derivatives (Afonso et al., 2005; Wijeweera and Garis, 2009).
Classical economic theory advocates that markets work best when they are left
alone and that governments should have a limited role in stimulating economic
growth (Palley, 2013). Government spending is a dangerous way of attempting to
improve economic growth as it leads to crowding out private investment.
The crowding-out effect involves the dampening of private sector spending activity
caused by public sector spending. Classical economic theory and the crowding-out
effect imply that there are no systematic relationships between government spend-
ing and economic growth (Carrasco, 1998; Schick, 1998).
On the other hand, Wagner’s law posits that economic growth (i.e. generating
more national revenues) leads to an increase in government expenditure.
Developing his theory in the late 1800s and early 1900s, German economist
Adolph Wagner argued that public expenditure is an outcome, not a cause, of
growth in gross domestic product (GDP) (Wijeweera and Garis, 2009). According
to his theory, an economy develops over time, which leads to an increase in gov-
ernment activities, which, in turn, results in an increase in public spending.
The increase in government activity is a result of: (1) an increase in demand for
services from the public and increased welfare costs; (2) an increase of government
functions and activities to ensure the market runs smoothly; and (3) the financing
of large projects implemented by the government due to their economic infeasibil-
ity or the inability of the private sector to execute them (Dilrukshini, 2009;
Eldemerdash and Ahmed, 2019; Musgrave, 1959). Critics of Wagner’s law have
1125
Albassam
To continue reading
Request your trial