Government size and economic growth in Botswana: an application of nonlinear armey curve analysis

Abstract

This study has investigated the impact of government size on economic growth in Botswana using annual time series data for the period 1973 to 2012. The study adopted a framework analysis based on a quadratic function/second degree polynomial regression employed by Vedder and Galloway (1998) and Herath (2012). Ordinary Least Squares (OLS) method was used for the regression analysis. The results obtained are not consistent with the empirical and theoretical views as they show that a small government size has a negative impact on economic growth while a large government size has a positive impact on economic growth in Botswana. The results obtained in the study were opposite the views of most of the studies conducted. Total government expenditure is solely used as a measure of government size and growth of GDP is used to measure economic growth. The study also employed other control variables which affect ecoomic growth such as government revenue as a percentage of GDP, Gross capital formation (GCF) as proxy for investment rate and growth of paid employees as a proxy for labor force growth. The results showed that government revenue and GCF had a negative impact on economic growth but GCF was insignificant. Growth of paid employees on the other hand had a positive impact on economic growth. The study also aimed at investigating the existence of the Armey curve in a developing country like Botswana. Due to government size having a negative impact on economic growth and government size squared having a positive impact on economic growth the study therefore concludes that the Armey curve existence in Botswana cannot be verified.