Does The Effectiveness of The Government Expenditure Accelerate Economic Growth?

FAISOL, FAISOL and M, Pudjihardjo and Dwi, Budi Santoso and Arif, Hoetoro (2020) Does The Effectiveness of The Government Expenditure Accelerate Economic Growth? Proceedings of the 23rd Asian Forum of Business Education(AFBE 2019). pp. 7-14. ISSN 2352-5428

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Abstract

The purpose of this study is criticizing the effectiveness of government expenditure to speed economic growth in Indonesia. Three Stage Least Square (3SLS) is used. This study applied data for 32 provinces in Indonesia for the period of 2012 to 2017 to ascertain the relevance of Solow Swan’s Neo Classic Growth Theory in measuring economic growth in developing country in recent time. The results found that inflation does not influence on economic growth significantly, but there is a negative tendency towards economic growth. The variable of investment influences on growth significantly. The government role as represented by government expenditure has various effect both inflation and investment. The salary expenditure does not affect on inflation rate temporarily, an increase in salary expenditure permanently occurs, it is a possibly of having an effect on inflation. And the health expenditure influences on investment significantly, but the education and infrastructure sector have no effect on investment significantly. These results indicate that is accordance to Solow Swan's neoclassical theory, that the capital of health expenditure can create capital accumulation, which in turn speeds economic growth. Our findings thus conform that Solow Swan's Neo Classical growth theory is still relevant in evaluating the effectiveness of government spending in accelerating economic growth through government spending in developing country such as Indonesia

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