Disaggregated Public Spending, Income Inequality and its Effect on Economic Growth: Empirical Evidence from Developing Countries

This study aims to check the impact of disaggregated public spending and income inequality on economic growth within a panel of 24 developing countries from 1990 to 2017. We used second-generation methodologies to check the cointegration and cross-sectional dependency within the panel. The empirical estimations are being carried out using the augmented mean group (AMG) and common correlated effect (CCE) frameworks, acknowledged for their efficiency in accommodating heterogeneity and cross-sectional dependence. The empirical outcome discloses that income inequality is positively correlated with economic growth, though insignificantly. In contrast, the dissection of public spending indicates notable variations in their impact on economic growth. Specifically, expenditures directed toward health, agriculture, education, and overall spending exhibit a positive and statistically significant effect on economic growth. Conversely, government expenditures on defense, transport, social protection, and communication negatively link economic growth. In light of these findings, this study advocates for policy considerations emphasizing sectors positively correlated with economic growth, notably health, education, and agriculture. The assertion is grounded in the recognition that investments in these sectors foster economic development and contribute to cultivating a healthier and more skilled populace, thereby constituting key determinants of sustained economic growth. These nuanced empirical insights contribute to the ongoing discourse on effective public resource allocation strategies in developing countries.