Government Spending and Economic Growth Nexus: A Contemporary Evidence in Sub-Saharan Africa

Motivated by empirical debates concerning the relationship between government expenditure and economic growth, this study examines the short and long-run effects of government expenditure on economic growth in 41 Sub-Saharan African countries from 2012-2022. The System GMM estimation technique was employed for the panel data obtained from World Development Indicators and the e-government Development Index. The safety of the data was duly checked by employing the LLC and IPS methods for unit root. The result of the study asserts that government expenditure adversely affects the economic growth of SSA in both the short and long run. The finding from the system GMM reveals that a one percentage change in government final consumption expenditure is associated with a 0.0342 percent decline in GDP per capita growth in the short run, while it leads to a 0.0045 decline in the GDP per capita growth of SSA countries, all other things kept constant. This shows that the negative effect of government expenditure in the long run is lower than its adverse effect in the short run. Further, unlike the short run, the adverse effect of the government expenditure is found to be insignificant in the long run. The policy implication is that SSA countries should carefully monitor their government spending in both the short and long run. Further, fiscal authorities of SSA countries are advised to direct the government expenditure to profitable projects. Finally, the faster GDP per capita growth in SSA countries demands a sharp focus on development sectors.