Government spending and economic growth in Zimbabwe: A dis-aggregated analysis (1980-2014)

Abstract

The study empirically examined the impact of various components of government expenditure on economic growth in Zimbabwe for the period 1980 to 2014. Government expenditure was broadly divided into three components: capital expenditure, social sector spending and consumption spending. The empirical analysis included other variables such as trade openness, foreign aid, labour force as well as a dummy variable for drought. Time series data from World Bank and ZIMSTAT were used during estimations. The study employed the Ordinary Least Square (OLS) technique. The results indicated that capital expenditure is growth-stimulating, social sector spending was found to be growth-retarding while consumption expenditure was growth-neutral. The results also showed growth-retarding effects of trade openness, labor force, drought, and foreign aid. Economic growth in Zimbabwe can be accelerated by investing more in productive capital projects such as infrastructural development and Research and Development (R&D). As such, the study recommends that the government prioritizes its budget allocations towards capital spending in order to accelerate economic growth in Zimbabwe. Public Private Partnerships (PPPs) are also encouraged as these may help improve the productivity and efficiency of public social sector spending. In addition, the study recommends that the government reallocates expenditures from consumptive purposes such as employment costs and foreign travel and channel them towards infrastructural development.