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Title:	An analysis of government expenditure, debt-growth nexus and twin deficits hypothesis : panel evidence from MENA economies
Authors:	Alshammary Mohammed Daher (P84815)
Supervisor:	Norlin Khalid, Assoc. Prof. Dr.
Keywords:	Economic development -- Middle East Economic development -- Africa North Middle East -- Commerce Africa North -- Commerce Universiti Kebangsaan Malaysia -- Dissertations Dissertations, Academic -- Malaysia
Issue Date:	2-May-2021
Description:	Economic growth is considered the main challenge for policy makers and a paramount standard variable for measuring the economic performance of a country. This thesis examines the impact of fiscal policy instruments on economic growth and their influences on the current account balance for the MENA region. The motivations of this study developed around the issue of the role of fiscal policy as a stabilization tool in the economy. Theoretically, fiscal policy can again be credited because it has been used by policymakers to stabilize countries’ economic growth through its instruments. Hence, this thesis examined the role of fiscal policy in stabilizing the MENA’s economies particularly in alleviating the negative influence of external shocks.There are three precise objectives: namely, (i) to examine the dynamic heterogeneous effect of government expenditures on economic growth in the MENA region; (ii) to estimate the threshold value of the debt-to-GDP ratio in the MENA region; and (iii) to investigate whether the relationship between the fiscal balance and the current account balance is consistent with the REH or the TDH with the inference of the Feldstein-Horioka hypothesis in the MENA region. The first objective of this thesis is aimed to examine the effect of government expenditure on the economic growth of the MENA countries using a PMG estimator to address the heterogeneity problem. The empirical results indicate that there is a dynamic adjustment from the short-run to the long-run for economic growth in the MENA region. In other words, government expenditures can promote economic growth, presumably due to their large crowding-in effect on economic growth for the entire sample of the MENA region. In addition, the PMG estimation provided results that were more interesting results, showing that, in the short-run, government expenditures are not an important determinant of economic growth in the non-oil producer countries. The second objective is motivated by the fact that the issues of debt-growth nexus has been gaining attention most recently particularly in the study by Reinhart and Rogoff (2008) on their paper entitled “Growth in a Time of Debt”. Additionally the inappropriate adoption of the methodology aims to be corrected by estimating the debt-to-GDP threshold level in the MENA region which overlooked the study in developing countries using Hansen (1999). The empirical results have revealed that the debt-to-GDP threshold is 58% for the entire sample of the MENA region. The estimated threshold implies that the MENA region has a lower debt-to-GDP threshold than developed countries or the combination of both developed and developing countries, as mentioned in Caner et al. (2010). Moreover, the findings show that public debt has a positive effect on economic growth below the threshold level, and the effect is ambiguous when debt exceeds 58% of the GDP. This outcome implies that the relationship between public debt and economic growth is contingent on the debt-to-GDP ratio. The last objective is motivated by the fact that the current account balance and the fiscal balance have a positive long-run relationship. This objective aimed to investigate empirically the dynamic effect of the fiscal balance on the current account balances and the, as well as, investment on the current account balances for the MENA region using a panel VAR approach under the generalized method of moments (GMM) style estimators. For (THD), unfortunately the shocks had not revealed a satisfying outcome since the response of current account balance to fiscal balance shocks are negative meaning that THD exists for the entire sample of the MENA region in the short-run, and the effect gradually dissipates. In addition, the results reveal that increases in fiscal deficits have deteriorated on the current account balances in both oil producer and non-oil producer countries. The results also find that the current account balances improve to the shock of the investment in the short-run and gradually dissipate in the entire sample of the MENA region. This finding is in agreement with the view that government expansion crowds crowd-in investment, which gives further weight for the rejection of the Feldstein-Horioka hypothesis in the MENA region. The results of this analysis show that, on average, across the full sample of MENA countries, fiscal balance, investment and the current account balance have a long-term correlation, indicating that the potential growth of the current account balance in the future basically depends on the fiscal deficit. Overall, the implications of the thesis suggest that at the macro level the enactment of fiscal policy specifically government expenditure should be spent in a more productive sector to manage debt level and curb negative effects of fiscal deficit on current account balance.,Ph.D.
Pages:	150
Call Number:	HC415.15.A437 2021 tesis
Publisher:	UKM, Bangi
Appears in Collections:	Faculty of Economy and Management / Fakulti Ekonomi dan Pengurusan

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