Does Government Expenditure Affect Growth and Human Development? Evidence from Bangladesh

Abstract

The role of government expenditure in promoting growth and human development is recognised worldwide. Although several cross-country studies have focused on this assessment, country case studies are meager. In addition, it is difficult to find an organised evaluation encompassing various dimensions of public expenditure to observe their effects on growth and human development in a developing context. This study systematically investigates, generating regression-based evidence, the effects of government expenditure on economic growth and human development in Bangladesh. Based on the primary findings, the study further attempts to unpack the human capital expenditure by the government to observe whether they can ensure the necessary supply of human capital inputs to realise desired human capital outputs necessary for productivity and growth. In addition, this study also examines the impacts of public spending in education and health sectors on respective human capital outputs at the subnational level in the country. The findings from this study are intriguing indeed. Public spending on infrastructure, current transfer, and interest payment has been significantly conducive to growth. In contrast, the unfavourable growth impact has been witnessed for government expenditure on human capital. The study finds that public spending for education effectively generates education inputs, which help to generate the education enrolment ratio. However, this promising outcome holds only at the primary level of education. On the other hand, government expenditure on health contributes to ensuring immunization and reducing infant mortality. Nevertheless, public spending on health has not effectively promoted the number of hospital beds and registered doctors. Furthermore, state capacity significantly influences the necessary supply of human capital inputs resulting from respective public expenditures. The study also finds that government spending on human capital significantly promotes human capital outputs at the subnational level in Bangladesh. One salient outcome has been noticed in the study: public expenditure for human capital has got heterogenous effects on respective human capital at the district level in the country, i.e., stronger in some districts and less strong in the other areas. Apart from mentioned contribution, policy implications such as the continuation of infrastructural spending by the government, ensuring quality of education and health service, monitoring and restructuring of the job market to accommodate skilled workforce, combating corruption, promoting allocative efficiency, safeguarding transparency and accountability in public spending to name a few have been also pointed out in the study.

Date of Award	1 Aug 2023
Original language	English
Awarding Institution	The University of Manchester
Supervisor	David Lawson (Supervisor) & Antonio Savoia (Supervisor)