Impact of Investment and Government Spending Volatility on Economic Growth
Keywords:
Generalized Method of Moments, Economic Growth, Impact, Economy, Government SpendingAbstract
This study investigates the impact of investment and government spending volatility on economic growth. For this purpose, we used a panel of 82 countries from 1999 to 2016 while using system Generalized Method of Moments (GMM) technique. Our findings indicate that government spending and investment volatility have adverse impact on economic growth in developing countries. The interaction of institutional quality with investment volatility shows that countries with low institutional quality have higher investment volatility, which in turn adversely affect their economic growth. In developing countries, fiscal policy is mostly pro-cyclical with high economic uncertainty, which hurt economic growth. But, developed countries have better institutions, which enables them to cope better with the volatility in government spending and investment.
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