Classical economics considers capital and labor as the main determinants of economic growth. Modern economics reveals however that differences in economic growth across countries may be due to additional factors. According to the endogenous growth theory, public spending would be an important explanatory variable of differences in growth rates across countries. Using modern time-series analysis, this paper goes toward this direction, analyzing the impact of public spending structure on short and long-run economic growth in Egypt, Morocco and Tunisia.
Following a survey of the main theoretical and empirical foundations of the impact of fiscal policy on economic growth, we have constructed an econometric model in order to estimate the impact on economic growth in the three countries of investment in the private and public sectors as well as current public spending and labor force.
In addition to the positive impact of private capital accumulation and labor force, our empirical results based on error correction models reveal that public investment exerts a crowding-in effect on economic growth in Egypt, Morocco and Tunisia. Nevertheless, public investment positively affects economic growth in Egypt and Tunisia only in the long run. By contrast, in the Moroccan case, the positive impact of public investment is observed in the short as well as long term. Our empirical results indicate that:
public investment completes instead of crowding-out private capital accumulation;
it conforms generally to efficiency and profitability norms prevailing in the private sector;
means of its financing do not hinder economic actors’ activities, including those of private investors.
As soon as current public consumption is concerned, our empirical results reveal that it acts negatively on economic growth in the three countries. However, its impact turns to be exerted in the short as well as long run in Morocco and Tunisia while the impact holds only in the short run in Egypt. This negative impact would be probably due to the predominance of the effects on demand and supply-side impacts resulting from increasing public consumption, of certain factors such as the substitution relationship between public and private components of consumption, the over-invoicing associated with certain current public expenditures, corruption and capital flights.
Professor of economics/Director of the Group of Research on Economics and Finance (GREF), Group of Research on Economics and Finance (GREF), Faculty of Juridical, Economic and Social Sciences, Cadi Ayyad University, Marrakesh, Morocco
Research interests: Education Reform and Management, Impact Evaluation, Monitoring and Analysis, Poverty Reduction, Services and Transfers to the Poor, Gender and Human Development.