Concept of Public Finance

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EPTD DISCUSSION PAPER NO. 99

PUBLIC SPENDING IN DEVELOPING COUNTRIES: TRENDS, DETERMINATION, AND IMPACT
Shenggen Fan and Neetha Rao

Environment and Production Technology Division International Food Policy Research Institute 2033 K Street, N.W. Washington, D.C. 20006 U.S.A.

February 2003

EPTD Discussion Papers contain preliminary material and research results, and are circulated prior to a full peer review in order to stimulate discussion and critical comment. It is expected that most Discussion Papers will eventually be published in some other form, and that their content may also be revised.

ABSTRACT

The objective of this paper is to review trends in government expenditures in the developing world, to analyze the causes of change, and to develop an analytical framework for determining the differential impacts of various government expenditures on economic growth. Contrary to common belief, it is found that structural adjustment programs increased the size of government spending, but not all sectors received equal treatment. As a share of total government spending, expenditures on agriculture, education, and infrastructure in Africa; on agricultural and health in Asia; and on education and infrastructure in Latin America, all declined as a result of the structural adjustment programs. The impact of various types of government spending on economic growth is mixed. In Africa, government spending on agriculture and health was particularly strong in promoting economic growth. Asia’s investments in agriculture, education, and defense had positive growth-promoting effects. However, all types of government spending except health were statistically insignificant in Latin America. Structural adjustment programs promoted growth in Asia and Latin America, but not in Africa. Growth in agricultural production is most crucial for poverty alleviation in rural areas. Agricultural spending, irrigation, education, and roads all contributed strongly to this



References: 8 Table 2—Composition of total expenditure, 1980 and 1998 (percent) Africa 1980 1998 Asia 1980 1998 Latin America 1980 1998

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