Which Type of Government Expenditure Foster Growth? Panel VAR Evidence From European Union and African Union

ABSTRACT To assess the direct, spillover and total effect of three types of government expenditure on economic growth, we analyzed 30 member states of AU and 27 member states of EU over the period of 2002–2023. The study reveals that education and health expenditure have positive direct effects and military expenditure has a negative direct effect on GDP per capita in the AU, while education and health expenditures have negative direct effects and military expenditure has positive direct effect in the EU. Education expenditure has positive spillover effects through the channels of human capital and technology in AU, while it has positive spillover effects through the channels of physical capital and technology. Health expenditure has positive spillover effects through the channels of human capital and technology in AU and EU. While military expenditure has a positive spillover effect through the channel of technology in AU, it has a positive spillover effect on GDP per capita through the channel of physical capital in EU. The total effect of education expenditure is larger in the EU, while health and military expenditure have vague effects in the AU.