Dynamics between government spending and economic growth in China: an analysis of productivity growth

ABSTRACT

This study investigates the dynamics between government spending and economic growth in China through influencing the productivity growth of human capital byapplying Markov switching estimates for the annual time series data of China over the period 1952–2014. Firstly, we found that the Chinese economy exists in two states including state one with low growth and state two with high growth. Secondly, the consumption spending has significantly positive effect both states, while the military spending has only positive effect in state two. Interestingly, the growth effect level of consumption spending in state two is smaller than that in state one, implying a reducing effect of total factor productivity in state two. Thirdly, the combined effects of consumption spending and military spending with human capital are state dependent. This combined effect is reduced in both states, suggesting that government spending does not improve the productivity growth effect of human capital.

KEYWORDS:

• Government spending
• economic growth
• Markov-Switching Dynamic Model

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Notes on contributors

Su Dinh Thanh

Dr. Su Dinh Thanh is Professor of Public Finance at School of Public Finance, University of Economics Ho Chi Minh City (UEH), Vietnam. He got his PhD in 2002 at UEH. He teaches several courses in Public Finance and Public Policy. He also works at Policy Consultant for Vietnamese Government and International Institute such as World Bank, UNDP. His research areas include Public Finance, Institutional Economics and Public Policy. He has several publications in these areas. His current interests are in tourism economics and public policy, institutional economics, fiscal decetralization.

Nguyen Phuc Canh

Dr. Nguyen Phuc Canh is Lecture at School of Banking, University of Economics Ho Chi Minh City (UEH) and Postdoctoral researcher at RMIT University, Vietnam. He got his PhD on Monetary policy transmission in Vietnam in 2017. He has worked for Auditing company (KPMG) and Investment company. He teaches several courses in Investment, Financial Statement Analysis, Macroeconomics, Institutions and Macroeconomics. His research areas are in Institutional Economics, Banking and Financial Economics, Tourism Economics, and Macroeconomics. He has several publications in Institutional Economics, Financial Economics. His current interests are Fiscal Policy, Shadow Economy, Financial Economics in Cryptocurrency market, and Tourism Economics.