Stabilization Effects of Social Spending on Economic Growth in Selected West African Countries

Abstract

This paper investigated the stabilization effects of social spending on economic growth in two selected countries namely, Senegal and Gambia. Using time series data from 1980 to 2015 the paper evaluated the cyclical behaviour of social spending, the optimal size of public social spending and the efficacy of public social spending to smoothen out fluctuations in the output. Auto-Regressive Distributed Lag (ARDL) Bounds testing approach and error correction mechanism (ECM) within dynamic OLS framework as well as static OLS were used. The results showed that social spending on education and health was pro-cyclical in Gambia and Senegal, but social spending in education was more pro-cyclical in education in the Gambia and for Senegal, health. The study found that the optimal government size that maximizes growth of GDP in the Gambia was 74 per cent of GDP and in Senegal the optimal government size that maximizes growth of GDP was 67 per cent of GDP. The paper recommended among others that Government should review the expenditure framework, to ensure that resources committed to social spending are efficiently utilized, with more emphasis on health expenditure in the Gambia and education for Senegal.