Social spending as a development tool: evidence from developing countries
Article Sidebar
Main Article Content
Abstract
In this paper, we aim to study the interrelationship between social spending, economic growth, and income inequality in developing countries from the year 1990 to 2013. We observed that all the categories of social spending produced a significant reduction in income inequality. Further, the impact of health and education spending on economic growth is significant, and that of social protection is insignificant. This indicates that both health and education spending can break the trade-off between equity and efficiency, that is, it can lead to both growth and progressive distributional change. However, given the importance of social welfare measures in reducing income inequality, developing countries need to focus on active social spending like labor market reforms that can increase gross domestic product growth rate and simultaneously reduce income inequality.
Keywords:
Downloads
Article Details
References
Adserà, A., & Boix, C. (2002). Trade, Democracy, and the Size of the Public Sector: The Political Underpinnings of Openness. International Organization, 56(2), 229–262. https://doi.org/10.1162/002081802320005478 DOI: https://doi.org/10.1162/002081802320005478
Afonso, A., & Alegre, J. G. (2011). Economic Growth and Budgetary Components: a Panel Assessment for the EU. Empirical Economics, 41(3), 703–723. https://doi.org/10.1007/s00181-010-0400-9 DOI: https://doi.org/10.1007/s00181-010-0400-9
Afonso, A., & Furceri, D. (2010). Government Size Composition, Volatility and Economic Growth. European Economic Review, 26(4), 517–532. https://doi.org/10.1016/j.ejpoleco.2010.02.002 DOI: https://doi.org/10.1016/j.ejpoleco.2010.02.002
Afonso, A., & Jalles, J. T. (2014). Fiscal composition and long-term growth Fiscal composition and long-term growth. Applied Economics, 46(3), 349–358. https://doi.org/10.1080/00036846.2013.848030 DOI: https://doi.org/10.1080/00036846.2013.848030
Aghion, P., Caroli, E., & García-Peñalosa, C. (1999). Inequality and Economic Growth: The Perspective of the New Growth Theories. Journal of Economic Literature, 37(4), 1615–1660. https://doi.org/10.1257/jel.37.4.1615 DOI: https://doi.org/10.1257/jel.37.4.1615
Alesina, A., & Perotti, R. (1996). Income Distribution, Political Instability, and Investment. European Economic Review, 40(6), 1203–1228. https://doi.org/10.1016/0014-2921(95)00030-5 DOI: https://doi.org/10.1016/0014-2921(95)00030-5
Alesina, A., & Rodrik, D. (1994). Distributive Politics and Economic Growth. Quarterly Journal of Economics, 109(2), 465–490. https://doi.org/10.2307/2118470 DOI: https://doi.org/10.2307/2118470
Arjona, R., Ladaique, M., & Pearson, M. (2003). Growth, Inequality and Social Protection. Canadian Public Policy, 29, S119–S139. https://doi.org/10.2307/3552279 DOI: https://doi.org/10.2307/3552279
Baldacci, E., Clements, B., Gupta, S., & Cui, Q. (2008). Social Spending, Human Capital, and Growth in Developing Countries: Implications for Achieving the MDGs. World Development, 36(8), 1317–1341. https://doi.org/10.1016/j.worlddev.2007.08.003 DOI: https://doi.org/10.1016/j.worlddev.2007.08.003
Banerjee, R., & Vashisht, P. (2010). The financial crisis: impact on BRIC and policy response.
Baqir, R. (2002). Social Sector Spending in a Panel of Countries. International Monetary Fund. DOI: https://doi.org/10.2139/ssrn.879405
Barro, R. J. (1991). Economic Growth in a Cross Section of Countries. The Quarterly Journal Of Economics, 106(2), 407–443. https://doi.org/10.2307/2937943 DOI: https://doi.org/10.2307/2937943
Barro, R. J. (1996). Determinants of Economic Growth: A Cross-Country Empirical Study. National Bureau of Economic Research, No. w5698. https://doi.org/10.3386/w5698 DOI: https://doi.org/10.3386/w5698
Barro, R. J. (2000). Inequality and Growth in a Panel of Countries. Journal of Economic Growth, 5, 5–32. DOI: https://doi.org/10.1023/A:1009850119329
Barro, R. J. (2003). Determinants of Economic Growth in a Panel of Countries. Annals of Economics and Finance, 4, 231–274.
Benabou, R. (2000). Unequal Societies: Income Distribution and the Social Contract. The American Economic Review, 90(1), 96–129. https://doi.org/10.1257/aer.90.1.96 DOI: https://doi.org/10.1257/aer.90.1.96
Benhabib, J., & Spiegel, M. (1994). The role of human capital in economic development: Evidence from aggregate cross-country data. Journal of Monetary Economics, 34(2), 143–173. https://doi.org/10.1016/0304-3932(94)90047-7 DOI: https://doi.org/10.1016/0304-3932(94)90047-7
Bergh, A., Mirkina, I., & Nilsson, T. (2020). Can social spending cushion the inequality effect of globalization? Economics & Politics, 32(1), 104–142. https://doi.org/10.1111/ecpo.12143 DOI: https://doi.org/10.1111/ecpo.12143
Bergh, A., & Nilsson, T. (2010). Do liberalization and globalization increase income inequality? European Journal of Political Economy, 26(4), 488–505. https://doi.org/10.1016/j.ejpoleco.2010.03.002 DOI: https://doi.org/10.1016/j.ejpoleco.2010.03.002
Buracom, P. (2011). The Determinants and Distributional Effects of Public Education, Health, and Welfare Spending in Thailand. Asian Affairs : An American Review, 3(113–142). https://doi.org/10.1080/00927678.2011.565282 DOI: https://doi.org/10.1080/00927678.2011.565282
Cammeraat, E. (2020). The relationship between different social expenditure schemes and poverty, inequality and economic growth. International Social Security Review, 73(2), 101–123. https://doi.org/10.1111/issr.12236 DOI: https://doi.org/10.1111/issr.12236
Castelló-Climent, A. (2010). Inequality and growth in advanced economies: An empirical investigation. Journal of Economic Inequality, 8(3), 293–321. https://doi.org/10.1007/s10888-010-9133-4 DOI: https://doi.org/10.1007/s10888-010-9133-4
Cubero, R., & Vladkova, I. (2010). Government Spending on Education, Human Capital Accumulation, and Growth. IMF Working Papers, 1–42. DOI: https://doi.org/10.5089/9781455200719.001
D’Agostino, G., Luca, P., & MarGherita, S. (2020). Social transfers and income inequality in OECD countries. Structural Change and Economic Dynamics, 52, 313–327. https://doi.org/10.1016/j.strueco.2019.11.004 DOI: https://doi.org/10.1016/j.strueco.2019.11.004
Dreher, A., & Gaston, N. (2008). Has Globalization Increased Inequality? Review of International Economics, 16(3), 516–536. https://doi.org/10.1111/j.1467-9396.2008.00743.x DOI: https://doi.org/10.1111/j.1467-9396.2008.00743.x
Feenstra, B. R. C., Inklaar, R., & Timmer, M. P. (2015). The Next Generation of the Penn World Table. American, 105(10), 3150–3182. https://doi.org/10.1257/aer.20130954 DOI: https://doi.org/10.1257/aer.20130954
Fiszbein, A., Kanbur, R., & Yemtsov, R. (2014). Social Protection and Poverty Reduction: Global Patterns and Some Targets. World Development, 61, 167–177. https://doi.org/10.1016/j.worlddev.2014.04.010 DOI: https://doi.org/10.1016/j.worlddev.2014.04.010
Folster, S., & Henrekson, M. (2001). Growth Effects of Government Expenditure and Taxation in Rich Countries. European Economic Review, 45(8), 1501–1520. https://doi.org/10.1016/s0014-2921(00)00083-0 DOI: https://doi.org/10.1016/S0014-2921(00)00083-0
Forbes, B. K. J. (2000). A Reassessment of the Relationship between Inequality and Growth. The American Economic Review, 90(4), 869–887. https://doi.org/10.1257/aer.90.4.869 DOI: https://doi.org/10.1257/aer.90.4.869
Foster, J. (2012). Income Inequality, Welfare Spending and Globalization.
Frank, M. W. (2009). Inequality and growth in the United States: Evidence from a new state‐level panel of income inequality measures. Economic Inquiry, 47(1), 55–68. https://doi.org/10.1111/j.1465-7295.2008.00122.x DOI: https://doi.org/10.1111/j.1465-7295.2008.00122.x
Furceri, D., & Aleksandra, Z. (2012). The Effects of Social Spending on Economic Activity: Empirical Evidence from a Panel of OECD Countries. Fiscal Studies, 33(1), 129–152. https://doi.org/10.1111/j.1475-5890.2012.00155.x
Furceri, D., & Zdzienicka, A. (2012). The Effects of Social Spending on Economic Activity: Empirical Evidence from a Panel of OECD Countries. Fiscal Studies, 33(1), 129–152. https://doi.org/10.1111/j.1475-5890.2012.00155.x DOI: https://doi.org/10.1111/j.1475-5890.2012.00155.x
Gebregziabher, F., & Niño-Zarazúa, M. (2014). Social spending and aggregate welfare in developing and transition economies. https://doi.org/10.35188/unu-wider/2014/803-2 DOI: https://doi.org/10.35188/UNU-WIDER/2014/803-2
Gottschalk, P., & Smeeding, T. M. (1997). Cross-national comparisons of earnings and income inequality. Journal of Economic Literature, 35(2), 633–687.
Gozgor, G., & Ranjan, P. (2017). Globalisation, inequality and redistribution: Theory and evidence. The World Economy, 40(12), 2704–2751. https://doi.org/10.1111/twec.12518 DOI: https://doi.org/10.1111/twec.12518
Greene, W. H. (2003). Econometric Analysis. Pearson Education India.
Hicks, A., & Zorn, C. (2005). Economic globalization, the macro economy, and reversals of welfare: Expansion in affluent democracies, 1978-94. In International Organization (Vol. 59, Issue 3). https://doi.org/10.1017/s0020818305050228 DOI: https://doi.org/10.1017/S0020818305050228
Huber, E., Mustillo, T., & Stephens, J. D. (2008). Politics and Social Spending in Latin America. The Journal of Politics, 70(2), 420–436. https://doi.org/10.1017/s0022381608080407 DOI: https://doi.org/10.1017/S0022381608080407
Im, T., Cho, W., & Porumbescu, G. (2011a). An Empirical Analysis of the Relation Between Social Spending and Economic Growth in Developing Countries and OECD Members. The Asia Pacific Journal of Public Administration Vol., 33(1), 37–55. https://doi.org/10.1080/23276665.2011.10779377
Im, T., Cho, W., & Porumbescu, G. (2011b). An Empirical Analysis of the Relation Between Social Spending and Economic Growth in Developing Countries and OECD Members. Asia Pacific Journal of Public Administration, 33(1), 37–55. https://doi.org/10.1080/23276665.2011.10779377 DOI: https://doi.org/10.1080/23276665.2011.10779377
Jaumotte, F., Lall, S., & Papageorgiou, C. (2013). Rising Income Inequality: Technology, or Trade and Financial Globalization? IMF Economic Review, 61(2), 271–309. https://doi.org/10.1057/imfer.2013.7 DOI: https://doi.org/10.1057/imfer.2013.7
Kaldor, N. (1955). Alternative theories of distribution. The Review of Economics Studies, 23(2), 83–100. DOI: https://doi.org/10.2307/2296292
Kaufman, R., & Segura-Ubiergo, A. (2001). Globalization, domestic politics, and social spending in Latin America. World Politics, 53(4), 553–587. https://doi.org/10.1353/wp.2001.0016 DOI: https://doi.org/10.1353/wp.2001.0016
Kumlin, S., & Rothstein, B. O. (2005). Making and Breaking Social Capital: The Impact of Welfare-State Institutions. Comparative Political Studies, 38(4), 336–365. https://doi.org/10.1177/0010414004273203 DOI: https://doi.org/10.1177/0010414004273203
Kuznets, S. (1955). Economic Growth and Income Inequality. American Economic Review, 45, 1–28.
Kwon, H.-J. (2005). Transforming the developmental welfare states in East Asia. Development and Change, 36(3), 477–497. https://doi.org/10.1111/j.0012-155x.2005.00420.x DOI: https://doi.org/10.1111/j.0012-155X.2005.00420.x
Lewis, W. A. (1954). Economic development with unlimited supplies of labour. The Manchester School, 22(2), 139–191. https://doi.org/10.1111/j.1467-9957.1954.tb00021.x DOI: https://doi.org/10.1111/j.1467-9957.1954.tb00021.x
Lin, S.-C., Huang, H.-C., Kim, D.-H., & Yeh, C.-C. (2009). Nonlinearity between inequality and growth. Studies in Nonlinear Dynamics and Econometrics, 13(2). https://doi.org/10.2202/1558-3708.1635 DOI: https://doi.org/10.2202/1558-3708.1635
Lopez, H. (2003). Macroeconomics and Inequality.
Lucas, R. E. (1988). On the Mechanics of Economic Development. Journal of Monetary Economics, 22(1), 3–42. DOI: https://doi.org/10.1016/0304-3932(88)90168-7
Meltzer, A. H., & Richard, S. F. (1981). A Rational Theory of the Size of Government. Journal of Political Economy, 89(5), 914–927. https://doi.org/10.1086/261013 DOI: https://doi.org/10.1086/261013
Mirrlees, J. A. (1971). An exploration in the theory of optimum income taxation. The Review of Economic Studies, 38(2), 175–208. https://doi.org/10.2307/2296779 DOI: https://doi.org/10.2307/2296779
Muinelo-Gallo, L., & Roca-Sagalés, O. (2013). Joint determinants of fiscal policy, income inequality and economic growth. Economic Modelling, 30, 814–824. https://doi.org/10.1016/j.econmod.2012.11.009 DOI: https://doi.org/10.1016/j.econmod.2012.11.009
Musgrave, R. A. (1959). Theory of Public Finance. McGraw-Hill Book Company, Inc.
Narayan, G. (2001). What about the Global Poor. Globalisation from Above and Below. Social Alternatives, 20(3), 40.
Niehues, J., & Niehues, J. (2010). Social Spending Generosity and Income Inequality: A Dynamic Panel Approach (No. 5178). Article 5178. https://doi.org/10.2139/ssrn.1675689 DOI: https://doi.org/10.2139/ssrn.1675689
Noy, S. (2011). New contexts, different patterns? A comparative analysis of social spending and government health expenditure in Latin America and the OECD. International Journal of Comparative Sociology, 52(3), 215–244. https://doi.org/10.1177/0020715211408760 DOI: https://doi.org/10.1177/0020715211408760
Odedokun, M. O., & Round, J. I. (2004). Determinants of Income Inequality and its Effects on Economic Growth Evidence from African Countries. African Development Review, 16(2), 287–327. https://doi.org/10.1111/j.1017-6772.2004.00093.x DOI: https://doi.org/10.1111/j.1017-6772.2004.00093.x
Okun, A. M. (1975). Equality and efficiency: The big trade-off. The Brookings Institution.
Ospina, M. (2010). The effect of social spending on income inequality: an analysis for Latin American countries. 10-03. DOI: https://doi.org/10.2139/ssrn.2427510
Perotti, R. (1996). Growth, Income Distribution, and Democracy: What the Data Say. Journal of Economic Growth, 1(2), 149–187. https://doi.org/10.1007/bf00138861 DOI: https://doi.org/10.1007/BF00138861
Persson, T., & Tabellini, G. (1994). Is Inequality Harmful for Growth? The American Economic Review, 84(3), 600–621.
Persson, T., & Tabellini, G. (2002). Political Economics: explaining economic policy. MIT Press.
Petrakos, G., & Arvanitidis, P. (2008). Determinants of Economic Growth. Economic Alternatives, 1, 49–69.
Piachaud, D. (2013). Social protection, redistribution and economic growth. Development Southern Africa, 30(1), 24–38. https://doi.org/10.1080/0376835x.2012.756101 DOI: https://doi.org/10.1080/0376835X.2012.756101
Rodrik, D. (1999). Where Did All the Growth Go? External Shocks, Social Conflict, and Growth Collapses. Journal of Economic Growth, 4(4), 385–412. https://doi.org/10.3386/w6350 DOI: https://doi.org/10.3386/w6350
Romer, P. (1994). The Origins of Endogenous Growth. The Journal of Economic Perspectives, 8(1), 3–22. DOI: https://doi.org/10.1257/jep.8.1.3
Rudra, N. (2004). Openness, welfare spending, and inequality in the developing world. International Studies Quarterly, 48(3), 683–709. https://doi.org/10.1111/j.0020-8833.2004.00320.x DOI: https://doi.org/10.1111/j.0020-8833.2004.00320.x
Rudra, N., & Haggard, S. (2005a). Globalization, democracy, and effective welfare spending in the developing world. Comparative Political Studies, 38(9), 1015–1049. https://doi.org/10.1177/0010414005279258
Rudra, N., & Haggard, S. (2005b). Globalization, Democracy, and Effective Welfare Spending in the Developing World. Comparative Political Studies, 38(9), 1015–1049. https://doi.org/10.1177/0010414005279258 DOI: https://doi.org/10.1177/0010414005279258
Saint-Paul, G., & Verdier, T. (1993). Education, democracy and growth. Journal Ofdevelopment Economics, 42(2), 399–407. https://doi.org/10.1016/0304-3878(93)90027-k DOI: https://doi.org/10.1016/0304-3878(93)90027-K
Sala, H., & Roca-Sagalés, O. (2011). Government expenditures and the growth-inequality trade-off: The swedish case. Journal of Income Distribution, 20(2), 38–54. https://doi.org/10.25071/1874-6322.23829 DOI: https://doi.org/10.25071/1874-6322.23829
Sanz, I., & Velázquez, F. J. (2007). The role of ageing in the growth of government and social welfare spending in the OECD. European Journal of Political Economy, 23(4), 917–931. https://doi.org/10.1016/j.ejpoleco.2007.01.003 DOI: https://doi.org/10.1016/j.ejpoleco.2007.01.003
Seshadri, A., & Yuki, K. (2004). Equity and efficiency effects of redistributive policies. Journal of Monetary Economics, 51, 1415–1447. https://doi.org/10.1016/j.jmoneco.2003.10.006 DOI: https://doi.org/10.1016/j.jmoneco.2003.10.006
Turnovsky, S. J. (2015). Economic growth and inequality: The role of public investment. Journal of Economic Dynamics and Control, 61, 204–221. https://doi.org/10.1016/j.jedc.2015.09.009 DOI: https://doi.org/10.1016/j.jedc.2015.09.009
United Nations ESCAP. (2013). Economic and Social Survey of Asia and the Pacific.
Urata, S., & Narjoko, D. A. (2017). International Trade and Inequality. International Trade and Inequality, No.675.
Wooldridge, J. M. (2015). Introductory econometrics: A modern approach. Nelson Education.
Zellner, A., & Theil, H. (1962). Three-Stage Least Squares: Simultaneous Estimation of Simultaneous Equations. Econometrica, 30(1), 54–78. https://doi.org/10.2307/1911287 DOI: https://doi.org/10.2307/1911287