Productive Contribution of Public Spending and Human Capital in Developing Countries Revisited: The Role of Trade Openness

Abstract

This study examines the catalytic role of trade openness in the relationships between human capital and public spending and total factor productivity (TFP) growth in 44 developing countries over the 1980–2014 period. Applying various estimation techniques to deal with autocorrelation, heteroscedasticity and cross-section dependence, the study finds that (a) the effect of human capital on TFP is nonlinear, (b) government consumption positively affects TFP but military spending is a negative factor and (c) trade openness significantly improves the positive influences of these factors on TFP. The results imply the important role of trade liberalisation in productivity evolution in developing countries. JEL Codes: F43, H52, O47

The efficiency of government finanical expenditures before and during the COVID-19 pandemic: A cross-country investigation

“…There is a trade-off (guns or butter) between spending on the military and spending on other things. If there are no threats to territorial integrity, spending on the military will lower TFP, especially in transitional countries ( Feng et al., 2017 ; Zhao et al., 2017 ; Su and Nguyen, 2022 ). There are at least two other ways that military spending can hurt the economy: (i) crowding out effects and (ii) sending misleading market signals.…”

“…To figure out how government spending affects TFP change and its components, we use the following equation, guided by the literature (e.g., Su and Nguyen 2022 , Thanh et al. 2020 ).…”

“…In this study, according to previous studies (e.g., Fisman and Svensson 2007 , Van Huong and Cuong, 2019 ), the mean values of government spending according to region, sector, and year are used as instrumental variables. Control ikt is a vector of control variables selected in accordance with previous studies (e.g., Su and Nguyen 2022 ), trade openness, natural endowment, digital index (e.g., mobile connectivity), and institutional quality variables. δ i denotes invariant unobservable variables and ε it is the error term.…”

How Can Tariff Elimination and Trade Facilitation Affect East African Economies?

“…As an illustration, Thelle and Sunesen (2011) find that the complete removal of trade barriers between the EU and Mercosur results in a 0.2% increase in EU Gross Domestic Product (GDP) due to increased industrial exports. Su and Nguyen (2022) show that trade openness significantly improves the positive effects of human capital and government spending on total factor productivity (TFP) in developing countries. Darku and Yeboah (2018) find that among developing regions that opened their economies late, sub-Saharan Africa (SSA) benefited the most from economic openness in terms of trade and FDI inflows.…”