Linkages between Social Sector Spending, Governance and Economic Growth

Abstract

There has been a long-drawn debate about whether the increase in social sector spending and good governance, the two key roles of any government, stimulate economic growth and if it is also sustainable. One school of thought believes that economic development can be best achieved by spending more on the improvement of the social sector and practising good governance as it helps to reduce corruption and enhance productivity, while the other opines that an increase in military expenditure ensures stable and secured government and also propels economic growth which translates into development at a later stage. The present study intends to establish the linkages between social sector spending, good governance and economic growth with reference to the two fastest-growing emerging nations, China and India. It is based on the secondary time series data available from the World Development Indicator, The Worldwide Governance Indicator (WGI) and Corruption Perception Index (CPI) developed by Transparency International. The result shows that not only social sector expenditures (particularly in health and education) in these two countries are below the world average, but poor governance has also been responsible for the decline in growth in these two countries in recent times.