ON THE THRESHOLD BETWEEN GOVERNMENT SIZE AND ECONOMIC GROWTH: EVIDENCE FROM TANZANIA

Authors: Michael O. A. Ndanshau & Cornel Joseph

ABSTRACT

This paper sought to empirically investigate the relationship between government size and economic growth in Tanzania by using annual time series data for the period 1967-2020, a period for which reliable data was available. Estimation by Autoregressive Distributed Lag (ARDL) bounds cointegration approach revealed the existence of a long-run and short-run relationship between economic growth, government size and other covariates of the estimation model. The results revealed the long-run effect of government size on economic growth was negative and was positive when it increased, suggesting the inexistence of a BARS curve in Tanzania during the sample period. Even though, the results supported the conventional views that price stability and openness of the economy are good for economic growth. While the results revealed the existence of a positive effect of population growth on economic growth, the effect of gross domestic investment was unexpectedly negative, both over the short and long-run period. The results suggest quadrupling the government size (consumption) is good for growth over the long run but not over the short run period. Also, the importance of price stability and commitment to openness of the economy to promote economic growth is underscored by the results.

Keywords: BARS curve, economic reforms, ARDL model, developing country.

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