Tác động của chi tiêu công, quản trị công đến tăng trưởng kinh tế tại các quốc gia châu á tt tiếng anh

MINISTRY OF EDUCATION AND TRAINING

STATE BANK OF VIETNAM

BANKING UNIVERSITY HO CHI MINH CITY

LE HOANG ANH

THE IMPACT OF PUBLIC EXPENDITURE,
GOVERNANCE ON ECONOMIC GROWTH IN
ASIAN COUNTRIES

SUMMARY OF PHD THESIS

HO CHI MINH CITY - 2019


MINISTRY OF EDUCATION AND TRAINING

STATE BANK OF VIETNAM

BANKING UNIVERSITY HO CHI MINH CITY

LE HOANG ANH

THE IMPACT OF PUBLIC EXPENDITURE,
GOVERNANCE ON ECONOMIC GROWTH IN
ASIAN COUNTRIES

SUMMARY OF PHD THESIS
Major: Finance – Banking

Code: 9.34.02.01
Scientific instructor: Assoc. Prof., Dr. Nguyen Ngoc Thach

HO CHI MINH CITY - 2019


1

CHAPTER 1: INTRODUCTION
1.1. The urgency of the thesis
Economic growth is the top concern of all countries in the world. The
relationship between economic growth and economic development and social
progress is indisputable. However, the sources, factors and mechanisms (based
mainly on market or state intervention) of economic growth are a matter of much
debate. The history of economic theories, despite recognizing the advantages of a free
market economy system before a centrally planned economy, still recognizes that the
free market economic system cannot solve it. Many problems or solve them with low
efficiency. These are called market fiasco. Therefore, there is a need for government
intervention in the market to ensure the goal of economic growth (Keynes, 1936). In
particular, public expenditure is an important tool of fiscal policy, demonstrating the
active impact of the state on the economy.
Theoretically, over the past decades, the effects of public expenditure on
economic growth have been conducted by many domestic and foreign studies
(Alexiou, 2009; England, 2008; Gemmell, Kneller, & Sanz, 2014; Malek, 2014;
Thon, Huong, & Thuy, 2010; Yasin, 2000). The results of studies show that, in most
countries, public expenditure is used as a tool of fiscal policy but its impact on
economic growth is still a controversial issue. The first two theories on the
relationship between public expenditure and economic growth are Wagner's theory
and Keynes's theory. Wagner's theory (1883) argues that a causal relationship exists
between public expenditure and national income. However, Wagner's theory (1883)

holds that public spending is not the cause of economic development, but rather an
endogenous variable of economic growth. Specifically, the increase in economic
growth is the cause of the increase in public spending. Contrary to Wagner's law
theory (1883), Keynes's (1936) theory argued that an increase in public spending
would have a positive effect on economic growth. As such, public spending is an
exogenous force driving economic growth (Loizides & Vamvoukas, 2005).
Economists who support Keynes's theory that proactive fiscal policy is an important


2

tool available to governments to promote economic growth (Shafuda, 2015). In
addition to these two theories, Solow (1956) in the Neoclassical growth model argues
that there is no long-term effect of public spending on economic growth. Neoclassical
growth models indicate that fiscal policies cannot bring about long-term changes in
economic growth. Neoclassical economists attribute the long-term economic growth
to population growth, labor force growth, technological progress and these variables
identified as exogenous. Contrary to the above results, Barro (1989) in the
endogenous growth model argues that public spending has a negative effect on
economic growth. Barro (1989) explains that government public spending can
overwhelm private investment, but does not provide a stimulus to offset investment
and growth. Thus, some studies suggest that public spending has a positive effect on
economic growth. Others argue that public spending has a negative or no effect on
economic growth. More specifically, the impact of public spending on economic
growth can be nonlinear, i.e. increasing public spending will promote economic
growth but when public spending exceeds a certain threshold, economic growth There
are signs of a gradual decrease in the health rate (Malek, 2014).
Practically, public spending also has different effects on economic growth. In
developing countries such as Asia, the scale of public spending tends to increase over
the years, reflecting the increasing demand for public services such as education,

public health care or small scale. infrastructure (IMF, 2014). This upward trend began
in the mid-1990s, increasing in both public spending and public investment. In
particular, during the 2008-2009 crisis, public spending increased sharply in most
developing countries. As Gemmell et al. (2014) stated, fiscal stimulus packages,
which significantly expanded the various public expenditure programs, were issued
in many countries from 2008 onwards to combat the economic crisis. global.
Although public spending is always high, the efficiency of public spending in
developing countries is very worrying (Cavallo & Daude, 2011; Gupta et al., 2014).
According to research by Gupta et al (2014), each public expenditure unit in
developing countries produces only half of the corresponding material value.


3

Thus, both the theoretical and practical contexts show the inconsistent effect
of public spending on economic growth. Therefore, in this study, the author aims to
re-evaluate the impact of public spending on economic growth so that conclusions
can be drawn in accordance with the conditions of Asian countries. In addition, in
order to obtain more comprehensive evidence, the author also examines the nonlinear
impact of public spending on economic growth.
Empirical studies conducted in different countries and regions on
macroeconomic conditions have shown that public spending has a different effect on
economic growth. However, the study of Zhuang et al. (2010) shows that public
spending has a positive effect on economic growth in some countries but has a
negative impact on other countries with the same. macroeconomic conditions. This
result can be explained by political characteristics and institutional quality (aspects
of public governance). Political specific factors and institutional quality have affected
a nation's ability to effectively implement fiscal policy (Brahmbhatt & Canuto, 2012).
By the early 1990s, the issue of public administration and its impact on
economic growth began to be discussed in international debates. International

organizations argue that public spending on public goods and services will not
achieve the desired effect of economic growth if budget construction, implementation
and monitoring fail. , 1992). This proposal shows that public governance plays an
important role in the impact of public spending on economic growth. Recent studies
have shown that factors of public governance may have created a change in the impact
of public spending on economic growth. For example, one of the elements of public
governance considered by recent studies is corruption. Studies have suggested that
corruption has a negative effect on the nation's economic growth (Glaeser & Saks,
2004; Xu, Li, & Zou, 2000). In particular, the study of dAgostino et al. (2016) shows
that under the influence of corruption, public spending on defense has a negative
impact on the economic growth of 106 countries in the sample.
Although there is evidence that public governance plays a role as a catalyst,
better and more effective control of the use of public spending can thus promote


4

economic growth or reduce the positive impact of spending. Public spending on
growth in a low-quality institutional environment has not been studied in a
comprehensive manner on the constituent elements of public governance affecting
this impact. In addition, several recent studies have looked at the individual effects of
public governance on economic growth but the measures have not been consistent
(Siddiqui & Ahmed, 2013). Most of the previous studies measuring public
governance were based on two sets of indicators, the Worldwide Governance
Indicators (WGI) and the International Country Risk Guide (ICRG). Although these
two indicators are heavily used in empirical studies to measure public administration
quality and depending on the research conditions that researchers can choose either
WGI or ICRG, recent studies have shown Some inadequacies in these indicators.
Specifically, the studies of Knoll & Zloczysti (2012), Langbein & Knack (2010) have
shown evidence of overlapping of 6 groups of indicators that make up these two sets

of indicators. At the same time, some of the two indicators are difficult to separate.
This implies that some of the two indicators can measure the same concept. That is
why some other empirical studies such as Al-Marhubi (2004), Bjørnskov (2006),
Easterly & Levine (2002) have averaged all six WGI indices in their analysis.
However, according to Siddiqui & Ahmed (2013), this average does not accurately
describe the quality of public administration.
Stemming from the above methodological considerations, in considering the
impact of public administration on the relationship between public spending and
economic growth, to address the inadequacies when using governance measures As
mentioned above, this study uses Exploratory Factor Analysis (EFA) based on the
two sets of indicators WGI and ICRG, in order to identify representative
measurement elements of governance. work. This method can help group indicators
together measure a concept to form a representative factor. These representations will
be separate from each other. By doing this, the author will overcome the overlap of
the 6 indicators groups that constitute the two sets of WGI and ICRG indicators to
form factors that really represent public governance. Finally, the author uses public


5

governance measures to find evidence of the impact of public administration on the
relationship between public spending and economic growth in Asian countries.
1.2. Objectives of the study
The overall goal of the study is to assess the impact of public expenditure,
governance on economic growth in Asian countries. On that basis, propose some
suitable policy implications. To achieve the overall goal, the study has the following
specific objectives:
- Assess the impact of public expenditure on economic growth in Asian
countries.
- Assess the impact of governance on economic growth in Asian countries.

- Assess the impact of governance on the relationship between public
expenditure and economic growth in Asian countries.
1.3. Research questions
To achieve the above research objectives, the thesis answers the following
questions:
- What is the impact of public expenditure on economic growth in Asian
countries?
- What is the impact of governance on economic growth in Asian countries?
- What is the impact of governance on the relationship between public
expenditure and economic growth in Asian countries?
1.4. Research participants and the scope of the study
Research participants: The impact of public expenditure, governance on
economic growth in Asian countries. In the content of this thesis, the author
approaches governance from the perspective of managing public expenditure
activities.
Research scope: The study was conducted in 43 Asian countries. Countries
were selected based on the availability of data for the variables in the research model.
The selected countries include 11 high-income countries and 30 middle-income
countries and 2 low-income countries according to the World Bank's income


6

classification. According to statistics of the Asian Development Bank (ADB), Asia
includes 50 countries. However, some countries do not have observable data, so the
study was conducted with 43 countries, accounting for 86% of Asian countries.
Therefore, the sample is still representative.
Duration of the study: The study was conducted during 2004 - 2017. This
period was chosen because most countries have data available. On the other hand,
this period also includes the period of world economic crisis of 2008-2009. This stage

was selected by the author to conduct research for a variety of reasons. Firstly, this
period ensures that 43 countries have sufficient data to conduct the study. Secondly,
this research phase includes the pre-crisis period 2004-2007, the crisis period 20082009, post-crisis period 2010-2017. Therefore, the author can consider the overall
impact of Public spending, public administration to economic growth in Asian
countries under normal and specific conditions.
1.5. Research Methods
In order to achieve the set research objectives, the thesis uses appropriate
estimation methods to explore the impact of public expenditure, governance on
economic growth in Asian countries. Specifically:
In order to explore the impact of public expenditure on economic growth in
Asian countries, the author developed the model from the research of Alexiou (2009),
Cooray (2009). To overcome the variance, autocorrelation and especially endogenous
phenomena that often occur in macroeconomic models, the author uses the difference
GMM method proposed by Arellano & Bond (1991).
In order to explore the factors representing the components of governance in
Asian countries, the author uses the Exploratory Factor Analysis (EFA) method with
two sets of governance indicators as Worldwide Governance Indicators (WGI) and
the International Country Risk Guide (ICRG).
To assess the impact of governance on economic growth in Asian countries,
the author develops a model from the research of Siddiqui & Ahmed (2013). The


7

difference GMM method proposed by Arellano & Bond (1991) continues to be used
to estimate models.
To assess the impact of governance on the relationship between public
expenditure and economic growth in Asian countries, the author continues to develop
the model from the studies of Alexiou (2009), Cooray (2009). ), Siddiqui & Ahmed
(2013). The difference GMM method proposed by Arellano & Bond (1991) continues

to be used to estimate models.
In addition, the author also uses traditional qualitative methods such as content
analysis, statistical description, analysis and synthesis, induction and deduction,
generalization. These methods aim at analyzing phenomena separately and then
combining them at a new level, summarizing specific facts into general conclusions,
and proving assumptions by facts and data.
1.6. New contributions of the thesis
The thesis focuses on specific objectives including: (1) Assessing the impact
of public expenditure on economic growth in Asian countries; (2) Assessing the
impact of governance on economic growth in Asian countries; (3) Assessing the
impact of governance on the relationship between public expenditure and economic
growth in Asian countries. Compared with the previous studies, the thesis has made
the following new contributions:
Based on data from 43 Asian countries during 2004-2017, the author assessed
the impact of public expenditure on economic growth. The results show that public
expenditure has a negative impact on economic growth. In addition, the study found
no evidence of the nonlinear impact of public expenditure on economic growth. In
addition, most of the previous studies usually only measure the impact of public
expenditure on economic growth without considering the factors that change this
impact. Unlike previous studies, the thesis considers the impact of governance on the
relationship between public expenditure and economic growth. The results show that,
in countries with good governance quality, public expenditure has a positive impact
on economic growth.


8

The results of the thesis have contributed to empirical evidence for Wagner's
law theory (1883), Keynes's theory of the impact of public expenditure on economic
growth. At the same time, the results of the thesis provide additional empirical

evidence to support the theories of public choice, political and economic theory,
institutional economic theory when showing the positive impact of governance on
economic growth and the role of governance in the relationship between public
expanditure and economic growth.
In addition, a new contribution of the thesis is made through governance
measurement. Specifically, most of the previous studies measuring governance were
based on the two sets of indicators, the Worldwide Governance Indicators (WGI) and
the International Country Risk Guide (ICRG). Although these two sets of indicators
are heavily used in empirical studies to measure governance quality, recent studies
have shown some limitations in these indicators. Specifically, the studies of Knoll &
Zloczysti (2012), Langbein & Knack (2010) have shown evidence of overlapping of
6 groups of indicators that make up these two sets of indicators. At the same time,
some of the two sets of indicators are difficult to separate. This implies that some of
the two sets of indicators can measure the same concept. Different from previous
studies, in order to solve the limitations when using the above sets of governance
measurement indicators, this study uses Exploratory Factor Analysis (EFA) to
identify factors that measure governance quality. This method can help group
indicators together measure a concept to form a representative factor. These
representations will be separate from each other. Factors representing public
governance will then be used to assess the impact on the relationship between public
spending and economic growth in Asian countries through estimating models using
the DGMM method proposed by Arellano & Bond (1991). This method is commonly
used in linear dynamic panel data estimates to overcome endogenous phenomena that
often occur in macroeconomic models. Therefore, the results obtained ensure the
reliability to conclude.


9

Besides, an issue for estimation methods is the stability of the model. This is

due to the regression coefficients of variables in the model being changed when the
number of explanatory variables in the model changes. At that time, conclusions
drawn from the estimation results may be affected. Therefore, a new contribution of
the thesis is that after estimating the author models continue to use Bayesian Model
Averaging (BMA) analysis to retest the regression coefficients to ensure the stability
of the model.
Finally, in practical terms, since increasing and inefficient public expenditure
can contribute to economic decline, the author considers the role of governance as a
catalyst and control managing and using public expenditure to promote economic
growth. The findings will help policymakers capture the impact of public governance
on the relationship between public spending and economic growth in Asia. From this
result, they have more bases to make adjustments on public governance activities to
better manage and use public spending to promote economic growth.
1.7. Thesis structure.
To solve the research objectives of the topic, the thesis is structured with 5
chapters:
-

Chapter 1: Introduction

- Chapter 2: Theoretical basis of the impact of public expenditure, governance
on economic growth
- Chapter 3: Research method of the impact of public expenditure, governance
on economic growth
- Chapter 4: Results of empirical research on the impact of public expenditure,
governance on economic growth in Asian countries
- Chapter 5: Conclusions and policy implications


10

CHAPTER 2: THEORETICAL BASIS OF THE IMPACT OF PUBLIC
EXPENDITURE, GOVERNANCE ON ECONOMIC GROWTH
2.1. Related concepts
2.1.1. The concept of public expenditure
Public expenditure is the state's expenditure to perform the inherent functions
of the state in providing public goods, serving socio-economic benefits to the
community (Minh, 2005). This definition comes from the comprehensive
management function of the state economy.
According to Minh (2005), public expenditure reflects government policies,
providing financial resources for the implementation of those policies. The
characteristic of public expenditure is that of non-refundable or direct repayments,
shown in that the results of public expenditure do not correspond to expenditures in
terms of quantity, quality, time and location. Many of the public expenditures have
been gained only after a long time, or the benefits are difficult to measure by the
corresponding value criteria that the Government has spent. Public expenditure is a
Government tool that provides public goods to the society, builds infrastructure,
allocates resources, distributes incomes, stabilizes macroeconomics, and attracts
investment capital.
2.1.2. The concept of public governance
Over the years, there have been many studies defining governance, some of
which can be listed as:
Schneider (1999) defines governance as the exercise of authority or control to
manage a nation's activities and resources. The United States Agency for
International Development (USAID, 2002) defines governance as a function and a
process characterized by the value of accountability, transparency and participation.
Zinnbauer (2002) defines governance as striving for the rule of law, transparency,
fairness, efficiency, accountability and strategic vision in the exercise of political,
economic and administrative power

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2.1.3. The concept of economic growth
According to Samuelson & Nordhaus (1985) economic growth is an expansion
of a country's GDP or potential output. In other words, economic growth takes place
when a country's capacity limit (PPF) moves outward. A concept very close to
economic growth is the increase in output per capita. Thus, economic growth is an
increase in the quantity, quality, speed and size of output of the economy in a given
period. In other words, economic growth is an increase in gross domestic product
(GDP) or gross national product (GNP) over a given period.
2.2. Theoretical basis of the impact of public expenditure, governance on
economic growth
2.2.1. Theoretical basis of the impact of public expenditure on economic growth
2.2.1.1. Theories on the impact of public expenditure on economic growth
One of the first theories on the relationship between public expenditure and
economic growth is the Wagner law theory (1883). Based on empirical studies,
Wagner's law theory (1883) argues that growth in public expenditure is inevitable for
a progressive economy because it is directly related to economic growth.
International. According to Wagner's theory (1883), the growth in public expenditure
must be greater than the economic growth. However, Wagner's theory (1883) argues
that it is economic growth that is the cause of growth in public expenditure.
Unlike Wagner's law theory (1883), in the 70s, Keynesian economists believed
that public expenditure, especially debt-based spending, could boost economic
growth. by increasing the purchasing power (aggregate demand) of the economy
(Loizides & Vamvoukas, 2005). Politicians often prefer Keynes's theory because it
gives them good reasons to spend. Some researchers have estimated a positive
relationship between public expenditure and the level of economic output. However,
their estimation methods are often limited due to the endogeneity of the research data.
More complex estimation methods have shown that public expenditure cannot drive

growth. The Keynesian theory ignores the fact that the government cannot boost the
purchasing power of the economy before reducing it through taxes and debt. Keynes's


12

theory then faced a major challenge when the world economy fell into recession in
the 1970s, and when there was an economic boom due to tax cuts combined with
tightening spending in the 1980s. Today, although Keynes's theory of public
expenditure is no longer respected by economists, it is frequently referred to by
politicians as a driving force for growth.
Following Wagner's theory (1883) and Keynesian theory, economists Barro
(1990), Devarajan et al. (1996), Davoodi & Zou (1998) began to model the impact of
public spending on economic growth in search of more convincing evidence.
2.2.1.2. Models of the impact of public expenditure on economic growth
❖ Barro model (1990)
❖ Devarajan et al. (1996)
❖ Davoodi & Zou (1998)
2.2.2. Theoretical basis of the impact of governance on economic growth
Although studies of the role of governance in economic growth are relatively
new, the importance of governance that has been recognized since the last century is
reflected in Adam Smith's theories ( 1755). He said that the prerequisite for building
a state of highest prosperity from a state with the lowest prosperity is peace, taxes and
a government of justice.
Besides Smith's theory (1755), the importance of governance was also
confirmed by Buchanan's Theory (1987). He argued that economists should look at
the Constitution of economic institutions themselves to examine the rules and
restrictions in which political actors play an important role.
Although the theories of Smith (1755) and Buchanan (1987) have shown the
importance of governance, the role of governance in the economic activities of

nations is only really considered when the research in the Africa region of Ndulu &
O'Connell (1999) is published. They find that dictatorship is associated with a weak
economy. Good governance allow citizens to engage in political activities and
activities related to empowerment, thereby improving the efficiency of economic
activities and promoting growth.


13

2.2.3. Theoretical basis of the impact of governance on the relationship between
public expenditure and economic growth
2.2.3.1. Theory of Public Choice and Theory of Political Economy
2.2.3.2. Theory of new institutional economics
2.3. Analytical framework for the impact of public expenditure, governance on
economic growth
Previous public finance studies usually only analyzed the impact of public
spending on economic growth (Alexiou, 2009; England, 2008; Easterly & Rebelo,
1993; Gemmell et al., 2014; Malek, 2014; Thon et al., 2010; Yasin, 2000). The impact
of public administration on the relationship between public spending and economic
growth has not been well-addressed, because of the difficulties in developing an
analytical framework that interprets this relationship comprehensively. The
Brahmbhatt & Canuto (2012) study is one of the few studies that establish an
analytical framework explaining the impact of fiscal policy on economic
development goals. In which the impact of public administration on the relationship
between public spending and economic growth is seen as an important constraint.
According to Brahmbhatt & Canuto (2012), the analytical framework is as follows:


14

Development objectives



Growth

Social risk



Equity

management


Fiscal policy rationale
-

Macroeconomic stabilization

-

Resource allocation: address market failures

-

Distribution





Instruments and institutions
-

Public spending levels

-

Tax policies

-

Financing

Constraints
-

Political economy and
institutional

and

public

balance sheet
-



Public

constraints
-

financial

capacity

Efficiency

costs

of

taxation and borrowing

management

Figure 2.1: Fiscal policy and economic development goals: institutional-political
and fiscal binding roles
Source: Brahmbhatt & Canuto (2012)
As Brahmbhatt & Canuto (2012) explains, the impact of public expenditure
on economic growth depends on budget, institutional and political constraints
(aspects of public governance). In addition to identifying the need for intervention in
the economy, available funding sources (budget constraints) and governance
conditions are factors that influence effective implementation of spending policies.
fruit. For example, to increase public expenditure, financing is required to finance

15

this expenditure, either from taxes or public debt. However, tax collection and
borrowing both incur costs. Therefore, the net effect of this public expenditure
depends on the way it is offset (Gemmell et al., 2012). In addition, the effectiveness
of this policy depends on the quality of governance. According to Brahmbhatt &
Canuto (2012), the government intervenes in the economy to solve market failures
but in some cases, the cost of government failure is greater than the cost of market
failure. Therefore, along with the budget constraint, the constraint on governance is
a factor affecting a country's public expenditure policy.
2.4. Summary of related studies
Table 2.1. Summary of related studies
Author (year)

Research issues

Research results

➢ Review studies on the impact of public expenditure on economic growth
Yasin (2000)

Check

the

effect

of public expenditure, trade

public expenditure on openness

and

private

economic growth using investment, all have positive
panel data from Sub- and significant effects on
Saharan, Africa.
Alexiou (2009)

This

study

economic growth.

provides Research results have shown

further evidence of the that four of the five variables
relationship

between used in public expenditure

economic growth and estimates
public expenditure in formation,
seven

countries

for

development

in assistance,

Southern Eastern Europe investment

capital

private
and

trade

(SEE) between 1995 and openness have a positive
2005.

impact and significantly to
economic growth.

Malek (2014)

Study the impact of the The study results show that
size

of

public the impact of government

16

expenditure

on consumption expenditure on

economic growth in the GDP on economic growth is
free economy surveyed not

linear.

Initially,

in Iran, using GMM economic growth increased
techniques to estimate with increasing government
and

with

variables: consumer spending on GDP.

unemployment

rate, Finally, when government

billion ratio of public spending on GDP rises
expenditure
ratio

of

to

GDP, above a certain threshold,

government economic growth declines.

investment to GDP, total
public expenditure to
GDP, growth rate of
investment, investment
over

GDP,

trade

openness, export rate
exports do not account
for

oil

exports

and

productivity.
Anh (2008)

Research the analysis of Research has shown that
public

expenditure investment

expenditures

structure and economic have a more positive effect
growth in Vietnam by than recurrent expenditures
conducting

the in

agriculture,

estimation of the above fisheries,

forestry,

education

&

relationship based on training, health care, and
data collection in 61 other industries. At the same
provinces

and

cities time, both investment and

recurrent

spending

in


17

nationwide from 2001 to transport,
2005.

education

&

training, and other sectors
play a greater positive role
in

short-term

growth

economic

than

their

corresponding expenditures
for

agriculture,

forestry,

fisheries and health sector.
Thon et al. (2010)

Research has shown that Using

the

investment expenditures estimation

pooled

OLS

method,

the

have a more positive research results show that
effect

than

recurrent the

expenditures

district's

capital

in expenditure needs to be

agriculture,

forestry, strengthened,

gathering, education & provincial

while
investment

training, health care, and spending should be reduced
other industries. At the to promote local economic
same

time,

both growth.

investment and recurrent
spending in transport,
education & training,
and other sectors play a

greater positive role in
short-term
growth

economic
than

their

corresponding
expenditures
agriculture,

for
forestry,


18

regener

and

health

sector.
➢ Review studies on the impact of governance on economic growth
Burkhart & Lewis-Beck Use time series data for Economic growth creates
(1994)

131 countries between democracy but democracy
1972 and 1989 to find does not create economic
evidence

of

relationship

the development
between

democracy

and

economic growth.
Cooper & Barro (1997)

Conduct

empirical There is a nonlinear causal

research

in

countries

on

many relationship that goes from
growth democracy

determinants.
Campos

&

(1999)

to

economic

growth

Nugent Examining the influence The rule of law and political
of

governance

on stability is necessary to

economic growth of 29 ensure a clean, strong legal
countries

in

Latin system

and

America and East Asia obstacles
during 1972-1995

to

eliminate
foreign

investment,

thus

contributing to economic
growth.
Kaufmann
(2004)

&

Kraay Assessing the impact of A
the

quality

strong

of correlation

governance on GDP per capita

and

positive

between

income

and

capita in 175 countries quality of governance.
around the world in
2000-2001.

per
the


19

Thi (2016)

The effect of governance Shows

evidence

on economic growth is positive

of

effects

the
of

made in a sample of 31 governance on the economic
middle-income countries growth of these countries
classified by the World
Bank between 2005 and
2013.
Cường (2016)

Corruption, one of the Research results have shown
components

of that corruption plays a role

governance,

and as a lubricant with a positive

economic

growth

in impact on economic growth.

transitional countries

➢ Review studies on the impact of governance on the relationship between
public expenditure and economic growth
Kaufmann

&

Kraay An analysis of global There is no relationship

(2004)

trends in the quality of between
governance

in

the

quality

of

209 governance and economic

countries from 1996 to growth.
2003.
Afonso & Jalles (2016); Assess the impact of Most studies have shown a
Baldacci et al. (2004); governance,
Butkiewicz

public positive,

statistically

& expenditure as well as significant

effect

of

Yanikkaya

(2011); the interaction of these governance on economic

Cooray

(2009); two factors on economic growth, however, the impact

Dzhumashev (2014); P. growth

of public expenditure as well

Kagundu (2006); Sen,

as the interaction between

(2014); Sunil Rajkumar

these

&

economic growth which is

Swaroop

(2002);

two

still debated.

factors

on


20

Juzhong Zhuang et al.
(2010)
Source: synthesis of authors from studies


21

CHAPTER 3: RESEARCH METHOD OF THE IMPACT OF PUBLIC
EXPENDITURE, GOVERNANCE ON ECONOMIC GROWTH
3.1. Research design
This study applies the processes of Alexiou (2009), Cooray (2009), and
Siddiqui & Ahmed (2013) to conduct an assessment of the impact of public

expenditure, governance on economic growth in Asia countries through the following
steps:
- Step 1: Based on relevant studies, propose a model to show the impact of
public expenditure, governance on economic growth in Asian countries.
- Step 2: Use EFA to identify the factors that represent the components of
governance according to two sets of indicators as Worldwide Governance Indicators
(WGI) and the International Country Risk Guide (ICRG).
- Step 3: Collect data and estimate models
- Step 4: Perform necessary tests
- Step 5: Analyze, evaluate and conclude the impact of public expenditure,
governance on economic growth in Asian countries based on the results of estimates
and tests.
3.2. Research Methods
The thesis has 03 research objectives: firstly, assess the impact of public
expenditure on economic growth in Asian countries; secondly, assess the impact of
governance on economic growth in Asian countries; Thirdly, assess the impact of
governance on the relationship between public expenditure and economic growth in
Asian countries.
With the research objectives set, the author formulated the corresponding
research methods to achieve these goals. As follows:
3.2.1. Methods to assess the impact of public expenditure on economic growth
To achieve the first research goal, the author uses an empirical model for Asian
countries as follows:


22

𝑙𝑛𝑦𝑖𝑡 − 𝑙𝑛𝑦𝑖(𝑡−1) = 𝜑0 + 𝜑1 𝑙𝑛𝑦𝑖(𝑡−1) + 𝜑2 𝑖𝑛𝑣𝑖𝑡 + 𝜑3 𝑙𝑖𝑡 + 𝜑4 𝑔𝑖𝑡 +
𝜑5 𝑂𝑃𝐸𝑁𝑖𝑡 + 𝜑6 𝐼𝑁𝐹𝑖𝑡 + 𝜀𝑖𝑡
Let 𝑔𝑟𝑜𝑤𝑡ℎ𝑖𝑡 = 𝑙𝑛𝑦𝑖𝑡 − 𝑙𝑛𝑦𝑖(𝑡−1) , we have the following experimental

model:
𝑔𝑟𝑜𝑤𝑡ℎ𝑖𝑡 = 𝜑0 + 𝜑1 𝑙𝑛𝑦𝑖(𝑡−1) + 𝜑2 𝑖𝑛𝑣𝑖𝑡 + 𝜑3 𝑙𝑖𝑡 + 𝜑4 𝑔𝑖𝑡 + 𝜑5 𝑂𝑃𝐸𝑁𝑖𝑡 +
𝜑6 𝐼𝑁𝐹𝑖𝑡 + 𝜀𝑖𝑡 (11)
where OPEN (trade openness variables), INF (inflation) are included in the
model (11) based on Siddiqui & Ahmed (2013).
On the other hand, evidence of the nonlinear effect of public expenditure on
economic growth was found in Malek (2014), in this study, the author also considered
the impact between these two variables is linear or nonlinearity by adding the (11)
model gsquareit is the square of the public expenditure variable. The specific research
model is as follows:
𝑔𝑟𝑜𝑤𝑡ℎ𝑖𝑡 = 𝜑0 + 𝜑1 𝑙𝑛𝑦𝑖(𝑡−1) + 𝜑2 𝑖𝑛𝑣𝑖𝑡 + 𝜑3 𝑙𝑖𝑡 + 𝜑4 𝑔𝑖𝑡 + 𝜑5 𝑔𝑠𝑞𝑢𝑎𝑟𝑒𝑖𝑡 +
𝜑6 𝑂𝑃𝐸𝑁𝑖𝑡 + 𝜑7 𝐼𝑁𝐹𝑖𝑡 + 𝜀𝑖𝑡 (12)
In addition, to consider the impact of public expenditure on economic growth
in Asian countries under normal and crisis conditions, the author added the model of
the CRISIS dummy variable. Regarding the timing of crisis in Asian countries, there
is still much debate. In this study, the author determines the time of crisis in Asian
countries based on the studies of Filardo (2011) and Keat (2009). According to
Filardo (2011), economic growth in Asian countries began to decline sharply in
September 2008, after the collapse of Lehman Brothers. This decline lasted until
March 2009. According to Keat (2009), from the fourth quarter of 2009 to the first
quarter of 2009, exports of Asian countries fell 85%, which led to a sharp decline in
economic growth. Thus, to ensure full coverage of the crisis time in Asian countries,
the CRISIS variable will receive a value of 1 as a representation of crisis conditions
in 2008 and 2009, receiving a value of 0 representing for normal conditions in the
remaining years in the research period, the specific model is as follows:


23

𝑔𝑟𝑜𝑤𝑡ℎ𝑖𝑡 = 𝜑0 + 𝜑1 𝑙𝑛𝑦𝑖(𝑡−1) + 𝜑2 𝑖𝑛𝑣𝑖𝑡 + 𝜑3 𝑙𝑖𝑡 + 𝜑4 𝑔𝑖𝑡 + 𝜑5 𝑂𝑃𝐸𝑁𝑖𝑡 +

𝜑6 𝐶𝑅𝐼𝑆𝐼𝑆 + 𝜑7 𝐼𝑁𝐹𝑖𝑡 + 𝜀𝑖𝑡 (13)
𝑔𝑟𝑜𝑤𝑡ℎ𝑖𝑡 = 𝜑0 + 𝜑1 𝑙𝑛𝑦𝑖(𝑡−1) + 𝜑2 𝑖𝑛𝑣𝑖𝑡 + 𝜑3 𝑙𝑖𝑡 + 𝜑4 𝑔𝑖𝑡 + 𝜑5 𝑂𝑃𝐸𝑁𝑖𝑡 +
𝜑6 𝑔𝑖𝑡 × 𝐶𝑅𝐼𝑆𝐼𝑆 + 𝜑7 𝐼𝑁𝐹𝑖𝑡 + 𝜀𝑖𝑡 (14)
3.2.3. Methods to assess the impact of governance on economic growth
Before assessing the impact of governance on economic growth, the thesis
proceeds to identify the factors that represent governance, in this study, the author
uses EFA discovery factor analysis through SPSS software 22.0.
EFA discovery factor analysis aims to evaluate two types of values of the
scale, convergent and discriminant values, in addition to reducing many observed
variables into groups of factors to make them more meaningful but still contain the
most informative content of the original variable. The basis of this reduction is based
on the linear relationship of factors with observed variables (Hair, 1998).
The evaluation of the impact of governance on economic growth is assessed
by the author through a model developed from Cobb-Douglas. The model is based on
a combination of growth theories proposed by Lucas (1988), Romer (1986), Solow
(1956).
𝑔𝑟𝑜𝑤𝑡ℎ𝑖𝑡 = 𝜑0 + 𝜑1 𝑙𝑛𝑦𝑖(𝑡−1) + 𝜑2 𝑖𝑛𝑣𝑖𝑡 + 𝜑3 𝑙𝑖𝑡 + 𝜀𝑖𝑡
where, the factors of human capital 𝑙𝑖𝑡 , private capital 𝑖𝑛𝑣𝑖𝑡 , productivity of
synthetic factors 𝜑0 will determine economic growth 𝑔𝑟𝑜𝑤𝑡ℎ𝑖𝑡 .
However, as discussed in the problem section in chapter 1 and the reasoning
in chapter 2, when these factors are fully employed, economic growth will slow down
or decrease. Meanwhile, recent empirical studies by Siddiqui & Ahmed (2013) show
that governance plays an important role in promoting economic growth. Therefore,
governance variables need to be included in the model. As follows:
𝒈𝒓𝒐𝒘𝒕𝒉𝒊𝒕 = 𝝋𝟎 + 𝝋𝟏 𝒍𝒏𝒚𝒊(𝒕−𝟏) + 𝝋𝟐 𝒊𝒏𝒗𝒊𝒕 + 𝝋𝟑 𝒍𝒊𝒕 + 𝝋𝟒 𝒐𝒑𝒆𝒏𝒊𝒕 + 𝝋𝟓 𝒊𝒏𝒇𝒊𝒕
𝒍

+ ∑ 𝜸𝒌 𝒈𝒐𝒗𝒌,𝒊𝒕 + 𝜺𝒊𝒕
𝒌=𝟏