The Effect of Government Size on Economic Performance: An Empirical Investigation on a Group of Developing Countries Using a Panel Data Approach

This paper examines the effect of government size, measured by the ratio of government consumption expenditures to gross domestic product, GDP, on the rate of growth of per capita GDP. Our sample includes 30 low-income and middle-income developing countries over the period 1970-90. We use a panel data approach to avoid the shortcomings of the cross-country models often used in such an analysis. The results indicate government size has a highly significant negative influence on the rate of economic growth.