Dynamic Effects of Public Expenditure on Oil-Producing Economies

Abstract

This chapter analyzes the effect of government expenditure on economic growth, emphasizing real gross domestic product (GDP), real agricultural sector GDP, and real manufacturing sector GDP in African oil-producing countries. The analysis was carried out on the basis of the panel autoregressive distributed lag (ARDL) model with annual data from 1970 to 2018. The results are as follows. First, the output effect of government expenditure revealed that government expenditure impacted positively and insignificantly on real GDP in the long run. Second, at 1.1 percent, government expenditure exerts a positive significant effect on agricultural sector output in the long run. Third, the effect of government expenditure on the manufacturing sector was positive but insignificant in the long run. The latter outcome is similar to what was obtained with relationship between the aggregate output (real GDP) and government expenditure. Governments in oil-producing countries should rethink and use their expenditures to enhance growth-oriented fiscal strategies for the transmission of crude oil benefits while crude oil commodity remains relevant.