Government spending and economic growth in Tanzania, 1965 - 1996

Abstract

The objective of this paper is to investigate the impact of public expenditures on economic growth using time series data on Tanzania (for 32 years).We formulate a simple growth accounting model, adapting Ram (1986) in which total government expenditure is disaggregated into expenditure on (physical) investment, consumption spending and human capital investment.Increased productive expenditure (physical investment) appears to have a negative impact on growth.Consumption expenditure relates positively to growth, and in particular appears to be associated with increased private consumption.Expenditure on human capital investment was insignificant in the regressions, probably because any effects would have very long lags.The results confirm the view that public investment in Tanzania has not been productive, but counter the widely held view that government consumption spending is growthreducing.We also find evidence that aid appears to have had a positive impact on growth, especially allowing for the reforms in the mid 1980s.