Effect of government spending on economic growth in Burundi

Abstract

One of every nation's primary macroeconomic objectives is economic growth. Government spending is crucial in developing countries because it helps to meet the population's basic needs. The numerous turmoils that Burundi has seen since gaining independence have had a profound effect on the country's economy. Following the civil war (1993–2005), the government's main objective was to boost the economy of the nation by ensuring everyone's safety, providing for their basic needs (such as health and education), and increasing agricultural productivity, which provided for 85% of the population and contributed 44.1% of GDP. The economy benefits from government spending in a few key areas, according to the research. Approximately 60% of the Burundian government's budget has been allocated to the agricultural, security, health, and education fields. It is essential to research how government investment on security, agriculture, health, and education affects Burundi's economic growth. The main objective of the study was to look into how government spending in Burundi affected economic growth from 2005 to 2017.Investigating the impact of government investment on the agriculture, health, security, and education sectors on economic growth in Burundi constituted the specific goals. This work provides an empirical analysis of how government expenditure affects economic growth. Numerous studies have looked into the nature of the relationship between economic growth and government spending using a range of explanatory variables and analytical methods. This study used the Keynesian Theory. In this study, secondary data were employed, more specifically quarterly time series data on GDP and spending in the agricultural, security, health, and education sectors in Burundi from 2005 to 2017.The data was obtained from the ministry of finance and the statistical institute of Burundi. Using ADF, a unit root test was performed on the data, and it was determined that all variables were non-stationary at level but stationary after the first difference. To determine whether the variables have a long-term relationship, the Johansen cointegration test was used. The Trace and Maximum Eigen values showed that there was only one possible cointegrating equation, therefore confirming the hypothesis that the variables have a long-term relationship. The characteristics of the long and short run relationships were established using the VEC model. With a coefficient of -0.950665 and a T-Stat of -7.54196, government spending on agriculture was proven to have a long-term, significant impact on Burundi's economic growth. With a coefficient of -0135594 and a T-Stat of -1.03483, government health spending was shown to have no impact on Burundi's economic growth. With a coefficient of 1.642991 and a T-Stat of 4.8765, government spending on security sectors was observed to have a significant and negative effect on Burundi's economy. With a coefficient of 1.24711 and a T-Stat of 4.14613, government spending on education was determined to have a significant and negative effect on Burundi's economy. It was fund that in the short run model the GDP’s first lagged value and the other variables embodied by the constant C were the only significant ones impacting GDP. The government should optimize its spending more on agriculture, while reducing its level and share of spending security in order to ease the burden and to direct some of the security expenditure to more productive sector. And adapt the education system so that it can be able to provide adequate skillsneeded by the labor market in order to boost productivity given that empirical results showed a negative effect of Burundi government spending on education on GDP. Further research should be done on the effect of other components of GDP consumption, investment, exports, and imports on Burundi’s economy