Public expenditure and economic sustainability: Does institutional quality matter?

Abstract

This study aims to provide an empirical insight into whether institutional quality moderates the impact of public expenditure on economic sustainability among the Sub‐Saharan African (SSA) countries. Using a quantitative and explanatory research design, this study sourced a 20‐year longitudinal dataset on 48 SSA countries from the World Development Indicators (WDI) and World Governance Indicators (WGI) databases from 2003 to 2022. Both Pooled OLS and System GMM econometric techniques were employed for analysis. It was found that public expenditure and institutional quality positively and significantly influence economic sustainability. However, institutional quality was found to negatively and significantly moderate this relationship. The practical implication suggests nations may face a trade‐off between maintaining institutional quality and ensuring long‐term economic sustainability. The moderation effect of institutional quality is novel in nature and adds to the body of existing literature.