Transcript No Slide Title

ACADEMY OF ECONOMIC STUDIES BUCHAREST
DOCTORAL SCHOOL OF FINANCE - BANKING
DISSERTATION PAPER
The Effects of Government Spending on Economic
Growth
Supervisor: Professor MOISA ALTAR
MCs Student: STOIAN ANDREEA - MARIA
June 2002
1. Empirical Evidence
2.Theoretical Background
3. Data and Methodology
4. Estimation Results
5.Conclusions
1. Empirical Evidence
exogenous growth
endogenous growth
government spending as flow (Ram, Barro, Engen & Skinner,
Heitger)
public capital hypothesis (Aschauer, Batina, Pereira)
financing government spending (Devereux & Love)
Ram (1986)
cross-section
115 countries, 1960-1980 (Summers-Heston database)
1960-1970, 1970-1980
LDC
individual regression (20 observations)
Findings:
positive relationship
government played an important role during major shocks
70/115, positive relationship
1 case, negative relationship
Barro (1989)
endogenous growth
government spending flow
cross -section, 72 countries,1960-1985 (Summers-Heston database)
excepting major oil-exporting countries
Findings:
positive relationship: social transfers, government spending on
infrastructure
negative relationship: public consumption spending
not significant relationship: national defense, education
inverse causality (Wagner’s Law): social transfers (+), education (+),
public consumption government spending (-)
Engen and Skinner (1992)
taxation and government spending
107 countries, 1970-1985 (Summers-Heston database)
negative relationship government spending - economic growth
Heitger (2001)
neoclassical model
21 OECD countries, 1960-2000
public consumption, transfers (interest payments, subsidies),
public investment
negative relationship: economic growth, investment
not-significant human capital
Aschauer (2001)
public capital hypothesis
”core” public goods vs. “others”
48 american states, 1970-1990
positive relationship
more significance for “others”
Pereira (2001)
public capital hypothesis
12 OECD countries
VAR/VECM
cointegration: Belgium, Canada, Germany, Sweden
no-cointegration: 8
24-34 observations
Aschauer (2001)
initial investments: bond issue
maintenance of capital: taxes
negative relationship
Devereux & Love (1995)
government spending financed by taxes
temporary or permanent shock: decreasing growth rate
2.Theoretical Background
Ihori & Kondo, 2001
At 1  (1  rt ) At  wt Lt  Ct  Tt
Yt  F (Gt , K t , Lt )
G t  (Gt , Gt ,..., Gt )
1
2
n
n


 1 


max Et U (ct )

1  
  t
 t


,   0


Tt 
 Gt 1
i
i 1
n
U (c t ) 
c
1
1
1
U  0, U  0
'
''
K t 1   Gt 1  F (Gt , K t , Lt )  (1   K )  Ct , 
i
,  0
i 1

1
2
3

Y  K t G1t G2t G3t Lt
ln Y   ln K t   1 ln G   2 ln G   3 ln G   ln Lt
1
t
2
t
3
t
ln Yt   1 ln G   2 ln G   3 ln G  C
1
t
2
t
3
t
lnY   1  ln G   2  ln G   3  ln G  C
1
2
3
3.Data and Methodology
Symbol
LCCONSUM
Description
Real government spending (log) on public
consumption, CPI deflated, base month, 1991:01
LCHUMAN
Real government spending on human capital, CPI
deflated, base month, 1991:01
LCINVEST
Real government spending (log) on public
investment, CPI deflated, base month, 1991:01
LCQIND
Real industrial production (log), PPI deflated , base
month, 1991:01
DCONSUM
Growth rate of public consumption
DHUMAN
Growth rate of human capital government spending
DINVEST
Growth rate of government spending on
infrastructure
DQIND
Growth rate of industrial production
Source: N.B.R. Annual and MonthlyReports.
4.Estimation Results
1st Step: simple OLS
2nd Step: “exogeneity” (Edelberg, Eichenbaum & Fisher, 1998)
3rd Step: VECM
Dependent Variable: DQIND
Method: Least Squares
Date: 06/25/99 Time: 21:00
Sample(adjusted): 1992:03 2001:09
Included observations: 115 after adjusting endpoints
Newey-West HAC Standard Errors & Covariance (lag truncation=4)
Variable
Coefficient
Std. Error
t-Statistic
Prob.
DINVEST -0.024100
0.045361
-0.531300
0.5963
DCONSUM 0.015880
0.029507
0.538154
0.5916
DHUMAN 0.015647
0.026742
0.585114
0.5597
SEAS -0.083104
0.019235
-4.320466
0.0000
C -0.004276
0.005833
-0.733166
0.4650
R-squared
0.068530
Mean dependent var
-0.003698
Adjusted R-squared
0.034658
S.D. dependent var
0.085096
S.E. of regression
0.083609
Akaike info criterion
-2.082837
Sum squared resid
0.768943
Schwarz criterion
-1.963492
Log likelihood
124.7631
F-statistic
2.023216
Durbin-Watson stat
2.327024
Prob(F-statistic)
0.096103
Gt  f ( t )   t
i
z t  f ( t i ), i  0....t
DHUMAN=f(DHUMAN(-1),DHUMAN(-2),DCONSUM,DCONSUM(-1),DINVEST,DINCOME,SEAS)+εt
DQIND - 4 lags
ADF Test Statistic
-6.166562
1% Critical Value*
5% Critical Value
10% Critical Value
-2.5844
-1.9429
-1.6172
DINVEST - 4 lags, intercept
ADF Test Statistic
-7.227855
1% Critical Value*
5% Critical Value
10% Critical Value
-3.4906
-2.8877
-2.5805
DHUMAN - 4 lags, intercept
ADF Test Statistic
-9.540343
1% Critical Value*
5% Critical Value
10% Critical Value
-3.4906
-2.8877
-2.5805
DCONSUM - 4 lag, intercept
ADF Test Statistic
-7.888694
1% Critical Value*
5% Critical Value
10% Critical Value
-3.4906
-2.8877
-2.5805
DINCOME - 4 lag, intercept
ADF Test Statistic
-4.911495
1% Critical Value*
5% Critical Value
10% Critical Value
-3.4906
-2.8877
-2.5805
Dependent Variable: DHUMAN
Method: Least Squares
Date: 06/26/99 Time: 08:58
Sample(adjusted): 1992:11 2001:09
Included observations: 107 after adjusting endpoints
Convergence achieved after 8 iterations
Newey-West HAC Standard Errors & Covariance (lag truncation=4)
Variable
Coefficient Std. Error
t-Statistic
Prob.
DHUMAN(-1) -0.579361 0.098008
-5.911371
0.0000
DHUMAN(-2) -0.467670 0.076827
-6.087311
0.0000
DCONSUM(-1) -0.147590 0.072311
-2.041053
0.0439
DINVEST 0.338493
0.083908
4.034110
0.0001
SEAS 0.465306
0.080681
5.767222
0.0000
AR(2) -0.440269 0.193891
-2.270707
0.0254
AR(3) -0.625042 0.113441
-5.509853
0.0000
AR(4) -0.293302 0.065879
-4.452111
0.0000
AR(6) -0.262480 0.122428
-2.143949
0.0345
R-squared
0.685767
Mean dependent var
-0.013247
Adjusted R-squared
0.660116
S.D. dependent var
0.490725
S.E. of regression
0.286091
Akaike info criterion
0.415346
Sum squared resid
8.021088
Schwarz criterion
0.640164
Log likelihood
-13.22104 F-statistic
26.73386
Durbin-Watson stat
1.935245
Prob(F-statistic)
0.000000
Inverted AR Roots
.44+.68i
.44 -.68i
.26+.75i
.26 -.75i
-.69 -.40i
-.69+.40i
Breusch-Godfrey Serial Correlation LM Test: (7 lags)
F-statistic
1.562423 Probability
Obs*R-squared
9.947410 Probability
1.0
0.156712
0.191573
0.5
0.0
-0.5
RESHUMAN - 4 lags
-1.0
ADF Test Statistic
-2.846257
1% Critical Value*
5% Critical Value
10% Critical Value
-2.5860
-1.9432
-1.6174
-1.5
93
94
95
96
97
98
RESHUMAN
99
00
01
Estimating DQIND - RESHUMAN
Dependent Variable: DQIND
Method: Least Squares
Date: 06/26/99 Time: 09:01
Sample(adjusted): 1993:11 2001:09
Included observations: 95 after adjusting endpoints
Newey-West HAC Standard Errors & Covariance (lag truncation=3)
Variable
Coefficient
Std. Error
t-Statistic
Prob.
RESHUMAN(-6) -0.082837
0.029995
-2.761667
0.0070
RESHUMAN(-7) -0.066954
0.025416
-2.634315
0.0099
RESHUMAN(-8)
0.086324
0.038080
2.266882
0.0258
RESHUMAN(-12) -0.073734
0.029189
-2.526125
0.0133
R-squared
0.136740
Mean dependent var
-0.001936
Adjusted R-squared
0.108281
S.D. dependent var
0.088705
S.E. of regression
0.083765
Akaike info criterion
-2.080421
Sum squared resid
0.638501
Schwarz criterion
-1.972889
Log likelihood
102.8200
F-statistic
4.804789
Durbin-Watson stat
2.187625
Prob(F-statistic)
0.003753
DINVEST=f(DINVEST(-1),DINVEST(-2),DCONSUM,DCONSUM(-1),DCONSUM(-2),SEAS)+εt
Dependent Variable: DINVEST
Method: Least Squares
Date: 06/26/99 Time: 09:07
Sample(adjusted): 1992:12 2001:09
Included observations: 106 after adjusting endpoints
Convergence achieved after 8 iterations
Newey-West HAC Standard Errors & Covariance (lag truncation=4)
Variable
Coefficient
Std. Error
t-Statistic
Prob.
DINVEST(-1) -0.595561
0.086203
-6.908806
0.0000
DINVEST(-2) -0.191481
0.089017
-2.151067
0.0339
DINCOME(-2) -0.256131
0.071203
-3.597191
0.0005
DCONSUM(-1) -0.126994
0.046515
-2.730171
0.0075
DCONSUM(-2) -0.149078
0.057686
-2.584314
0.0112
SEAS
0.346213
0.102169
3.388629
0.0010
AR(7) -0.294462
0.089070
-3.305955
0.0013
R-squared
0.497714
Mean dependent var
-0.013081
Adjusted R-squared
0.467273
S.D. dependent var
0.350216
S.E. of regression
0.255616
Akaike info criterion
0.173475
Sum squared resid
6.468612
Schwarz criterion
0.349362
Log likelihood
-2.194172
F-statistic
16.34983
Durbin-Watson stat
1.847743
Prob(F-statistic)
0.000000
Inverted AR Roots
.76+.36i
.76 -.36i
.19+.82i
.19 -.82i
-.52 -.66i
-.52+.66i
-.84
Breusch-Godfrey Serial Correlation LM Test (12 lags)
F-statistic
1.301366
Probability
Obs*R-squared
15.21274
Probability
0.8
0.232462
0.230008
0.4
0.0
-0.4
RESINVEST - 4 lags
-0.8
ADF Test Statistic
-4.392390
1% Critical Value*
5% Critical Value
10% Critical Value
-2.5862
-1.9432
-1.6174
-1.2
93
94
95
96
97
98
RESINVEST
99
00
01
Estimating DQIND - RESINVEST
Dependent Variable: DQIND
Method: Least Squares
Date: 06/26/99 Time: 09:11
Sample(adjusted): 1993:10 2001:09
Included observations: 96 after adjusting endpoints
Newey-West HAC Standard Errors & Covariance (lag truncation=3)
Variable
RESINVEST(-4)
RESINVEST(-10)
R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
Durbin-Watson stat
Coefficient
0.072316
-0.075973
0.087171
0.077460
0.084907
0.677658
101.5480
2.343924
Std. Error
t-Statistic
0.029700
2.434840
0.038255
-1.985984
Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
F-statistic
Prob(F-statistic)
Prob.
0.0168
0.0499
-0.001388
0.088399
-2.073917
-2.020493
8.976582
0.003497
LCQIND - 4 lags, intercept
ADF Test Statistic
-2.726813
DQIND - 4 lags
1% Critical Value*
5% Critical Value
10% Critical Value
-3.4900
-2.8874
-2.5804
ADF Test Statistic
LCINVEST - 4 lags, intercept
ADF Test Statistic
-1.938528
1% Critical Value*
5% Critical Value
10% Critical Value
-1.194054
1% Critical Value*
5% Critical Value
10% Critical Value
1% Critical Value*
5% Critical Value
10% Critical Value
-2.5844
-1.9429
-1.6172
DINVEST - 4 lags, intercept
-3.4900
-2.8874
-2.5804
ADF Test Statistic
LCHUMAN - 4 lags, intercept
ADF Test Statistic
-6.166562
-7.227855
1% Critical Value*
5% Critical Value
10% Critical Value
-3.4906
-2.8877
-2.5805
DHUMAN - 4 lags, intercept
-3.4900
-2.8874
-2.5804
ADF Test Statistic
-9.540343
1% Critical Value*
5% Critical Value
10% Critical Value
-3.4906
-2.8877
-2.5805
LCCONSUM - 4 lags, intercept
DCONSUM - 4 lag, intercept
ADF Test Statistic
-2.502513
1% Critical Value*
5% Critical Value
10% Critical Value
-4.0429
-3.4504
-3.1503
ADF Test Statistic
-7.888694
1% Critical Value*
5% Critical Value
10% Critical Value
Johansen Cointegration Test
Eigenvalue
0.228582
0.106868
0.051697
0.011082
Likelihood
Ratio
49.35512
20.02876
7.257420
1.259227
5 Percent
Critical Value
47.21
29.68
15.41
3.76
1 Percent
Critical Value
54.46
35.65
20.04
6.65
Hypothesized
No. of CE(s)
None *
At most 1
At most 2
At most 3
-3.4906
-2.8877
-2.5805
Response of LCQIND to One S.D. LCCONSUM Innovation
Response of LCQIND to One S.D. LCINVEST Innovation
0.000
0.000
-0.005
-0.002
-0.004
-0.010
-0.006
-0.015
-0.008
-0.020
-0.010
-0.025
-0.012
5
10
15
20
25
30
35
40
45
5
50
10
15
Response of LCQIND to One S.D. LCHUMAN Innovation
0.05
0.04
0.03
0.02
0.01
0.00
5
10
15
20
25
30
35
40
45
50
20
25
30
35
40
45
50
5.Conclusions
industrial production reacts on shocks on human capital
government spending
industrial output reacts on shocks on government spending on
investments
the effects of HCGS are more significant than those of GSI
long-run equilibrium relationship
GSC, GSI negative effects on industrial production
HCGS positive effects on industrial production
industrial production human capital intensive
Shortcomings:
cross-section analysis (not my favourite)
monthly data
”exogeneity” of government spending on consumption
first-difference stationarity: coefficients from OLS
financing government spending
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