The Threshold of Government Size and Economic Growth for ASEAN Countries: An Analysis of the Smooth Transition Regression Model

26 Pages Posted: 11 Sep 2014

See all articles by Su Dinh Thanh

Su Dinh Thanh

University of Economics Ho Chi Minh City

Bui Mai Hoai

University of Economics Ho Chi Minh City

Date Written: September 9, 2014

Abstract

The relationship between the size of government and economic growth is a contentious issue. The present study is undertaken to test hypothesis that the relationship between government size and economic growth is nonlinear. This panel data study involves ASEAN countries over the period 1980–2011. We modify the empirical model of Chen and Lee (2005) and employ a smooth transition regression model for panel data (PSTR) to test the threshold effect of government size. Robustness checks of the model are conducted by GLS and GMM estimation. Empirical results show that there exists a nonlinear relationship between government size and economic growth for ASEAN countries. The threshold level of government consumption spending is 25.69 per cent GDP. As government size exceeds this level, economic growth reduces by 0.2 per cent. Our findings suggest that governments in ASEAN countries consider optimal government size at round 25.69 per cent GDP for supporting sustainable economic growth.

Keywords: Threshold of government size, Economic growth, ASEAN countries, PSTR.

Suggested Citation

Thanh, Su Dinh and Mai Hoai, Bui, The Threshold of Government Size and Economic Growth for ASEAN Countries: An Analysis of the Smooth Transition Regression Model (September 9, 2014). Available at SSRN: https://ssrn.com/abstract=2493744 or http://dx.doi.org/10.2139/ssrn.2493744

Su Dinh Thanh (Contact Author)

University of Economics Ho Chi Minh City ( email )

59 C Nguyen Dinh Chieu Street, Dis 1
279 Nguyen Tri Phuong Street, Dis 10
HCM, Ho Chi Minh 70000
Vietnam

Bui Mai Hoai

University of Economics Ho Chi Minh City ( email )

59 C Nguyen Dinh Chieu Street, District 3
279 Nguyen Tri Phuong, District 10
Ho Chi Minh, 7000
Vietnam

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