The Role of Public Sector in Economic Growth Evaluation for the Impact of Government Expenditure in Sectoral Output: The Case Study of Sudan

By Hassan, Khalid; Abdullah, Azrai | Global Business and Management Research: An International Journal, January 2017 | Go to article overview

The Role of Public Sector in Economic Growth Evaluation for the Impact of Government Expenditure in Sectoral Output: The Case Study of Sudan


Hassan, Khalid, Abdullah, Azrai, Global Business and Management Research: An International Journal


Introduction

The relationship between public sector and economic growth have been received more attention as an important case in macroeconomics and growth studies. The world economy adopt for a decades a growth strategy depends on underscoring the role of private sector on production process. This strategy led to a curtailment the contribution of public sector in economic output and hence in the development process. However, numerous of study have pointed out the influence role of public sector in economic growth. (Aschauer, 1990) examined empirically, the impact of public capital accumulation on US private investment and economic output. The finding implies positive effect of capital spending in both cases. Aschauer's study was followed by a rapidly growing literature such as (Gramlich, 1994), (Argimon, Gonzalez, and Roldan, 1997), (Barro, 1988), (Devarajan, Swaroop, and Zou, 1996), (Ram, 1986). Most of this study argue the case of public infrastructure investment as a factor of substitutability in economic output.

The intensive literature associated to the macroeconomic impact of public sectors on economic growth during the recent years brought this case again into the spotlight. Empirical studies include, among others,(Rajkumar and Swaroop, 2008), (Nurudeen and Usman, 2010), (Loizides and Vamvoukas, 2005), (Bouakez and Rebei, 2007), (Akinlo, 2013), and (Dzingirai Canicio and Zachary, 2014). Most of these studies used cross country time series data to measures the relationship between public sector and economic growth. Two trend appeared in this literature. First trend is focused on investigated the role of public spending in support private capital accumulation, while the second trend is concentrate on the direct effect of public spending in economic growth.

A central question have been always subject to analysis is whether or not public expenditure support the long run steady growth in the economy. The general view of most theoretical assumption in this regards is that public expenditure, notably on human capital and physical infrastructure could enhance a country economic growth. Public expenditure may directly or indirectly enhance a country output through its interaction with the private sector and provision of necessity infrastructure and social services. Public expenditure can be approximately classified in terms of purpose as development and recurrent expenditure. Recurrent expenditure refers to expenditure made on ongoing programmers or activities such as constitutes spending on salaries and wages, administration entitlements, and welfare services. Recurrent expenditure may impact economic growth through effecting on people's ability to work, save and invest. Development expenditure mention to expenditure that is generally made on new projects and activities, it constitutes of investment in national schemes including construction of roadways, railways and power projects, establishment of communication systems and support community development activities. Implementing such project would raise economic growth both directly and indirectly through encouraging private investment.

Theoretical Framework and Literature Review

The effects of government sector on economic growth have been subject to appraisal in different theoretical and empirical studies. At the theoretical level, one point of view proposed that larger size of government is likely to be harmful for the economy due to, government operation mostly conducted unprofessionally and many of government fiscal policy tend to distort economic operation and led to lower productivity. Another point of view suggested that intervention of government in economic operation could be powerful for economic growth and development (Ram, 1986). The main theoretical thought in this regards is the Keynes school, Wagner law, view of neoclassical model and the new growth framework. New classical model considered public expenditure to have a transition effect in economic growth. …

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