Publication date: July 26, 1997

"The Composition of Public Expenditures and Economic Growth." Shantayanan Devarajan, Vinaya Swaroop, and Heng-fu Zou. Journal of Monetary Economics 37(2, April): 313–44, 1996.

Noting that the literature has focused on the link between the level of public expenditure and growth, we derive conditions under which a change in the composition of expenditure leads to a higher steady-state growth rate of the economy. The conditions depend not just on the physical productivity of the different components of public expenditure but also on the initial shares. Using data from 43 developing countries over 20 years we show that an increase in the share of current expenditure has positive and statistically significant growth effects. By contrast, the relationship between the capital component of public expenditure and per capita growth is negative. Thus, seemingly productive expenditures, when used in excess, could become unproductive. These results imply that developing-country governments have been misallocating public expenditures in favor of capital expenditures at the expense of current expenditures.

Datasets cover 69 countries for the period from 1970 to 1990. The readme file attached to the data files lists data sources, define variables, time periods, and country lists.

• Data on government expenditures from the IMF's Government Finance Statistics on budgetary central government functions called PUBEXPB1
• Data on government expenditures from GFS on consolidated central government functions called PUBEXPC1

Data Sources

1. Government Finance Statistics (GFS), International Finance Statistics (IFS), and National Accounts (BESD - World Bank Economic and Social Database) - all from the International Monetary Fund.
2. International Currency Analysis, Inc., World Currency Yearbook, New York.
3. IECNA in BESD; World Development Report (WDR), 1991; World Debt Tables (WDT)- all from the World Bank.