Solmaz Moslehi

 PhD Thesis

The Composition of Government Expenditure with Alternative Choice Mechanisms

Master Thesis

Addressing The Growth Failure of the Oil Exporting Countries: The Role of Government Activities

Government size has been used as an extra explanatory variable in the growth regression models beside the fundamental determinants of economic growth since 1980's. Government size represents a significant part of government activities in advanced economics. In developing countries and especially in the oil exporting countries, however, government expenditure dose not cover the whole government activities and government intervenes the economy through a variety of non-budgetary activities.

In this research we have categorized government activities in three main areas namely: government expenditure, government ownership and non-budgetary regulations and distortions. Since distortions and government ownership are expected to have a considerable impact on economic growth in the oil economies, two separate indices have been constructed in order to capture the growth effect of these two different forms of government activities. Both indices of government distortions and ownership are appeared to be higher in the oil exporting countries as compared with the rest of the world.

The thesis is divided into two parts. In the first part we have focused on a panel regression growth model which covers the period of 1995 to 2002 for 132 countries (20 of which being oil producing counties) with the government indices as explanatory variables. In the second part we have tried to explain the time series behavior of economic growth of Iran for the period of 1960 to 2003. The area of concern in the second part is again different sorts of government activities.

The results obtained in both cases indicate that while government distortions and regulations have a net dampening impact on economic growth, the government expenditure in non-capital (including human capital) activities and also the size of government ownership are related to economic growth in a quadratic form. On this basis it becomes possible to obtain optimum values for the size of government and government ownership.