Bridging Borders for Shared Prosperity: The Spatial Effect of Public Spending on Inclusive Growth in Africa South of the Sahara

ABSTRACT Modelling spatial interactions in macroeconomic analysis is crucial given interdependencies and spillovers arising from government policies, trade, population, investment and knowledge flows among neighbouring countries. This article tests the traditional spillover theory by investigating the spatial effects of government spending on inclusive growth among 39 contiguous countries in Africa South of the Sahara (SSA). Adopting the Spatial Durbin approach, the study establishes positive spatial effects of the total spending, education spending, investment spending and fiscal redistribution on inclusive growth, implying that spatial spillovers from neighbouring countries exist. The study observes that the indirect (spillover) effect of government spending outweighs the size of the direct effect, suggesting that inclusive growth is significantly influenced by the public spending of neighbouring and proximate countries. The finding affirms that if a country's government spending does not impact its growth, it affects its neighbour's growth, which in turn causes a secondary feedback effect on the focal country. The study affirms that spatial effects are significant drivers of inclusive growth in the region. The article recommends that policies should not be formulated in isolation, but a coordinated regional approach to public expenditure should be encouraged. It reiterates the need to strengthen regional economic integration, harmonize fiscal policies and foster cross‐border investments to enhance the positive externalities from government spending in stimulating inclusive growth across SSA.