Affiliation:
1. City Futures Research Centre, Faculty of the Built Environment, University of New South Wales, Kensington, Australia
Abstract
The new growth theory establishes, among other things, that government
expenditure can manipulate the economic growth of a country. This study
attempts to explain whether government expenditure increases or decreases
economic growth in the context of Sri Lanka. Results obtained employing a
productive output series and applying an analytical framework based on second
degree polynomial regression are generally consistent with previous findings:
government expenditure and economic growth are positively correlated;
excessive government expenditure is negatively correlated with economic
growth; and investment promotes growth. In a separate section, the article
examines Armey?s idea of a quadratic curve that explains the level of
government expenditure in an economy and the corresponding level of economic
growth [Armey, D. (1995). The Freedom Revolution. Washington, D.C.: Regnery
Publishing Co.]. The findings confirm the possibility of constructing the
Armey curve for Sri Lanka, and it estimates the optimal level of government
expenditure to be approximately 27%. This article adds to the literature
indicating that the Armey curve is a reality not only for developed
economies, but also for developing economies.
Publisher
National Library of Serbia
Subject
General Economics, Econometrics and Finance
Cited by
18 articles.
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