Government expenditure and macroeconomic stability conundrum in Zimbabwe
- Author(s)
-
DOIhttp://dx.doi.org/10.21511/ed.20(2).2021.02
-
Article InfoVolume 20 2021, Issue #2, pp. 10-26
- Cited by
- 376 Views
-
188 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
The objective of this paper was to explore the effect of government expenditure growth on macroeconomic stability in Zimbabwe. Public expenditure has grown over time but as per a priori expectations, other macroeconomic variables have not been forth coming. What the country has actually experienced is prolonged macroeconomic instability. The paper contributes to the body of literature in two ways, (1) by creating a macroeconomic instability index and (2) by being the first in the Zimbabwean context to explore this conundrum. To achieve the main objective of the paper, the study used a cointegrated vector error correction model (VECM) and Granger causality with data spanning 1981 to 2019. The study did not find a statistically significant relationship between government expenditure and macroeconomic stability as argued mostly by the Keynesians. However, according to a priori expectations, the relationship turned out to be rightly negative. To buttress the Cointegrated-VECM results, granger causality tests were also conducted where no causality was found from government spending to macroeconomic stability, and vice versa (causality running from instability to government spending). This paper recommends that, Zimbabwe’s policy makers may need to consider proactive government spending or policies, since that helps the economy to successfully avoid possible risks such as macroeconomic instability. When policies are proactive rather than reactive, that helps by seizing untapped opportunities, and the economy justly avoids consequences of reactive governance.
- Keywords
-
JEL Classification (Paper profile tab)E62, H00, H20, H50, H68, O01
-
References30
-
Tables9
-
Figures5
-
- Figure 1. Expenditure vs Revenue in bln
- Figure 2. Expenditure to GDP ratio in SADC
- Figure 3. Macroeconomic Instability Index in Zimbabwe
- Figure A1. Diagnostic tests – Parameter stability DOLS
- Figure A2. Dynamic stability- VECM
-
- Table 1. Unrotated Principal-component factors
- Table 2. Factor loadings (pattern matrix) and unique variances
- Table 3. Non-Stationarity Test Results
- Table 4. Optimum Lag Length
- Table 5. Johansen Cointegration Test
- Table 6. Macro-stability and Government Expenditure Long run estimates
- Table 7. Granger Causality
- Table 8. Variance decomposition of MI in Zimbabwe
- Table A1. VECM Residual Normality
-
- Attari, M., & Javed, A. (2013). Inflation, economic growth and government expenditure of Pakistan: 1980-2010. Procedia Economics and Finance, 5, 58–67.
- Audu, N. (2012). The Impact of Fiscal Policy on the Nigerian Economy. International Review of Social Sciences and Humanities, 4(1), 142–150.
- Barro, R. (1996). Inflation and growth. Review, 78, 153–169.
- Cariolle, J., & Goujon, M. (2015). Measuring macroeconomic instability: A critical survey illustrated with exports series. Journal of Economic Surveys, 29(1), 1–26.
- Chamorro-Narvaez, R. (2012). The Composition of Government Spending and Economic Growth in Developing Countries: The Case of Latin America. OIDA International Journal of Sustainable Development, 5(6), 39–50.
- Debrun, X., & Kapoor, R. (2010). Fiscal policy and macroeconomic stability: automatic stabilizers work, always and everywhere (IMF Working Papers WP/10/111) (47 p.). International Monetary Fund.
- Du Plessis, S., Smit, B., & Sturzenegger, F. (2007). The cyclicality of monetary and fiscal policy in South Africa since 1994. South African Journal of Economics, 75(3), 391–411.
- Egwaikhide, F., Oyeranti O., Ayodele, O., & Tchokote, J. (2002). Causality between Budget Deficit and the Current Account Balance in African Countries. West African Journal of Monetary and Economic Integration, 2, 10–41.
- Fan, S., & Rao, N. (2003). Public Spending in developing Countries: Trends, Determination and Impact (EPTD Discussion Paper No.99). Washington: International Food Policy Research Institute.
- Fatas, A., & Mihov, I. (1999). Government Size and Automatic Stabilizers: International and Intranational Evidence (26 p.). In Conference Paper for Lessons from Intranational Economics for International Economics.
- Fischer, S. (1992). Macroeconomic stability and growth. Cuadernos de Economía, 29(87), 171–186.
- Gali, J. (1994). Government size and macroeconomic stability. European Economic Review, 38(1), 117–132.
- Granger, C. (1988). Some recent development in a concept of causality. Journal of econometrics, 39(1-2), 199–211.
- Gupta, S., Clements, B., Baldacci, E., & Mulas-Granados, C. (2005). Fiscal policy, expenditure composition, and growth in low-income countries. Journal of International Money and Finance, 24(3), 441–463.
- Haroon, R., & Jehan, Z. (2020). Measuring the impact of violence on macroeconomic instability: evidence from developing countries. Portuguese Economic Journal, 1–28.
- Ismail, M., & Hussain, F. (2012). Fiscal Discretion and Its Impact on Pakistan Economy. The Pakistan Development Review, 51(4), 339–362.
- Keynes, J. (1936). The General Theory of Employment Interest and Money (472 p.). Macmilian Cambridge University Press.
- Kumhof, M., & Laxton, D. (2013). Simple fiscal policy rules for small open economies. Journal of International Economics, 91(1), 113–127.
- Li, C. (2010). Government Size and Macroeconomic Stability: Sub-National Evidence from China (MPRA Paper No. 28226) (33 p.).
- Miron, J. (2010). The Negative Consequences of Government Expenditure (Mercatus Centre Discussion Paper No. 10-55) (26 p.).
- Mohanty, M., & Zampolli, F. (2009). Government Size and Macroeconomic Stability. BIS Quarterly Review, 55–68.
- Musgrave, R. (1969). Fiscal Systems. New Haven: Yale University Press.
- Okoro, A. S. (2013). Government spending and economic growth in Nigeria (1980–2011). Global Journal of Management and Business Research Economics and Commerce, 13(5), 21–29.
- ZimFact (2018). Zimbabwe’s national debt: where does it stand? (p. 56).
- Risquete, A., & Ramajo, J. (2015). The Effect of Fiscal Policy on Spanish Economy:Keynesian or Non-Keynesian Behavior. Journal of Policy Modeling, 37(6), 1019-1048.
- Saville, S. (2008). Government Spending and Inflation.
- UNCTAD (2016). Global macroeconomic stability (pp. 178-179). In Development and globalization facts and figures. United Nations UNCTAD.
- UNCTAD (2012). World investment report 2012: towards a new generation of investment policies (United Nations Conference on Trade and Development) (239 p.). New York: United Nations.
- Wagner, A. (1883). Three extracts on public finance (reprinted), In R. Musgrave & A. Peacock (Eds.) (1958), Classics in the theory of public finance. London: Macmillan.
- World Bank (2017). Zimbabwe Economic Update: The State in the Economy.
-
Impact on poverty and income inequality in Malaysia’s economic growth
Rabiul Islam
,
Ahmad Bashawir Abdul Ghani ,
Irwanshah Zainal Abidin ,
Jeya Malar Rayaiappan
doi: http://dx.doi.org/10.21511/ppm.15(1).2017.05
Problems and Perspectives in Management Volume 15, 2017 Issue #1 pp. 55-62 Views: 12071 Downloads: 5762 TO CITE АНОТАЦІЯPoverty and income inequality are extreme issues that still exist in Malaysia. Any rise in poverty and income inequality definitely affect economic growth. There are many great efforts taken by the government of Malaysia to eradicate poverty and to reduce the gap of income inequality which occurs since 1970’s. The incidence of poverty and income inequality is higher in rural areas compared to urban areas. This paper is mainly to study the level of poverty and income inequality in Malaysia together with government intervention to develop Malaysia’s economic growth. The research is focused among the working people at Ipoh, Perak. In this paper, questionnaire forms are being distributed to get information regarding the issue of poverty and income inequality. It also looks into the strategies taken by the government of Malaysia to eradicate poverty and income inequality. Few recommendations are given in terms of education policy, financial aid and assistance from government and non-government organization (NGO) to upgrade the standard and quality of living among the poor and lower-income group of people.
-
Impact of inflation on economic growth: evidence from Nigeria
Anthony Olugbenga Adaramola ,
Oluwabunmi Dada
doi: http://dx.doi.org/10.21511/imfi.17(2).2020.01
Investment Management and Financial Innovations Volume 17, 2020 Issue #2 pp. 1-13 Views: 9385 Downloads: 5706 TO CITE АНОТАЦІЯIn an attempt to examine the influence of inflation on the growth prospects of the Nigerian economy, the study employs the autoregressive distributed lag on the selected variables, i.e. real gross domestic product (GDP), inflation rate, interest rate, exchange rate, degree of economy`s openness, money supply, and government consumption expenditures for the period 1980–2018. The study findings indicate that inflation and real exchange rate exert a significant negative impact on economic growth, while interest rate and money supply indicate a positive and significant impact on economic growth. Other variables in the model depict no influence on the economic growth of Nigeria. The causality result shows the unidirectional relationships between interest rate, exchange rate, government consumption expenditures and gross domestic product. However, inflation and the degree of openness show no causal relationship with gross domestic product. As a result, the study recommends that a more pragmatic effort is needed by the monetary authorities to target the inflation vigorously to prevent its adverse effect by ensuring a tolerable rate that would stimulate the economic growth of Nigeria.
-
Formalization of the impact of imbalances in the movement of financial resources on economic growth of countries in Central and Eastern Europe
Serhiy Kozmenko ,
Maxim Korneyev
doi: http://dx.doi.org/10.21511/afc.01(1).2017.06
Accounting and Financial Control Volume 1, 2017 Issue #1 pp. 48-58 Views: 7989 Downloads: 1382 TO CITEThe article deals with the impact of financialization on economic growth in countries of Central and Eastern Europe. It determinesthe impact of imbalances in the movement of financial resources caused by financialization on economic growth of these countries. It proves that the implementation of measures aimed at increasing the openness of the economy and maintaining solvent demand have a positive impact on economic growth of the surveyed countries in the long run. It also proves the importance of developing a set of measures of strategic nature regulating imbalances in the movement of financial resources caused by financialization.
