The Relationship Between Government Expenditures and Economic Growth: Case of Kyrgyzstan

Abstract

This thesis paper examines the relationship between government expenditures and real GDP in the case of Kyrgyzstan for the period from 2000 to 2011. There were conducted tests: unit root, cointegration and lag length selection. There were used Vector Error Correction and Ordinary Least Squares models. Dependent variable: real GDP growth. Independent variables: government expenditures in relation to GDP, total investments in capital stock, interest rate, trade openness and M1. At the disaggregated level following components of government expenditures were regressed: government expenditures on social, general and economic development. Empirical analysis for Kyrgyzstan shows that in both models there is a significant negative relationship between aggregate government expenditures and real GDP growth. At the disaggregated level, econometric results showed that government expenditures on social and general development have significant negative impact on GDP growth, while government expenditures on economic development have significant positive impact on GDP growth.