CHAPTER I

THE PROBLEM

Background of the study

According to the (World Economic Situation and Prospects,

2019), the steady growth in global economy masks an increase in

downside risks that could worsen development challenges in many

parts of the world. The international economy is experiencing a

convergence of risks which could totally disrupt some economic

related activities and cause a damage on development prospects. In

many developed countries, economic growth rates have increased and

unemployment rates have decreased. However, economic progress and

development has been extremely uneven across global countries.

Many large developing countries showed a decline in per capita

income in 2018 despite the continuous economic improvements at the

global level. Even among countries that have strong growth on per

capita income, economic activities are usually driven by core

industrial and urban regions only and leaving behind those outlying

and rural areas.

As emerging economies, the rationale for the creation of the

Association of Southeast Asian Nations (ASEAN) is obvious. Put

together, the 10 member states – Indonesia, Malaysia, the

Philippines, Singapore, Thailand, Brunei, Myanmar, Cambodia, Lao

PDR and Viet Nam - form a global powerhouse. Covering a land area
1
of almost 4.5 million kilometres and with a total population of

over 600 million, the ASEAN nations had a combined GDP per capita

of 116,827.954 US$ in 2017 by which ASEAN ranks as the world’s

sixth-largest economy.

To take a brief step back, one of the target of the ASEAN

Charter, which was agreed at the 13th ASEAN Summit in November

2007, was to create a single market and production base. To make

this happen, the key way is the Master Plan in which it cited two

areas, an “institutional” connectivity – such things as cross-

border procedures and trade liberalization– and “people-to-people”

connectivity, which cover the areas of education, culture and

tourism.

Philippines, as part of the ASEAN organization, is currently

facing the problem about the 2019 national budget which caught

attention and created disagreement between the House of

Representatives (lower house) and Senate (upper house). The issue

started when the lower house realigned the lump sum budget that is

almost 70 billion pesos and are divided among congressmen. The

upper house then said that our constitution is violated when the

lower house has realigned the said budget after its ratification.

Because of this situation, the 2019 budget may not get its final

approval. Some economic managers affirmed that if the budget

doesn’t get its approval immediately, it will cause trouble to our

2
economy. The Gross Domestic Product (GDP) will decrease because

GDP is the prime indicator of economic growth, and most government

programs and projects will be affected.

According to (Department of Budget and Management, 2018) of

the Philippines, the proposed 2019 national budget of P3.757

trillion will be allotted to ten different government

expenditures. The sector with highest allocation is education that

amounts to P659.3 billion and followed by infrastructure with

P555.7 billion allocations. Among the ten expenditure, the

judiciary and ARMM got the lowest allocations amounting to P37.3

billion and P7.9 billion respectively. Philippines complied with

the objective of Master’s Plan in “people-to-people connectivity”

in which education received the highest allocation because of the

implementation of Republic Act No. 10931 that covers the tuition

and fees of students enrolled in 112 SUCs, 78 LUCs, TVET, and

TESDA. On the other hand, infrastructure received the second

highest allocation of fund during 2018 because of the “Build,

Build, Build” program, which is the Duterte administration’s

medium-term goal to increase infrastructure spending from 5.4% GDP

in 2017 to 7.3% by 2022 (Lamentillo, 2018).

Many researchers have attempt to study the relationship

between government expenditures and economic growth. This topic

has created a lot of interest between economists and policy makers

3
because the linkage between these two variables is still an

unresolved issue theoretically as well as empirically.

Understanding this topic may help in creating a more appropriate

and goal-oriented policies, strategies, and ways on improving a

country’s economy through an efficient allocation of expenditures.

Government expenditures are the expenses incurred by the

government for the maintenance of itself, the economy and the

society at large (Salawu, 2005). Hence, it may be an important

tool which the government uses to influence the economy and pilot

the effects on economic growth.

In order to keep pace with the rest of the world, we realize

that not only ASEAN must build a greater Community among our 10

Member States, we must also integrate ASEAN into the global

community. Allocating government expenditure is one of the

critical elements that make our connections within the ASEAN region

and to the rest of the world possible. With growing ASEAN’s trade

and investment in so many years, we need to be able to sustain and

enhance this growth by investing our resources more in quality of

education, and better allocation of fund in government

expenditure. Thus, enhancing our components of government

expenditure linkages is a foundation in building of the ASEAN

Community, but the problem is with the policy risk, whereby

governments take decisions that will have a negative effect for

4
investors without meaning to cause that effect. Thus, this study

seeks to determine the linkage between economic growth and

government expenditures in order to provide a policy that may be

helpful to ASEAN countries in uplifting their economy through

proper allocation of government expenditures. Also, we would like

to conduct this study in order for the Philippines to adapt the

policies and strategies from ASEAN countries with high level of

economy.

Statement of the Problem

This study will evaluate the economic indicators of

Association of Southeast Asian Nation (ASEAN) countries in

assessing the relationship between the variables – government

expenditure and economic growth from the period 2013 to 2017.

1. What is the socio-demographic profile of the ASEAN countries

in terms of:

a. Land Area;

b. Population Density;

c. Political System; and

d. Labor force

2. How much are their government expenditures in terms of:

a. Education;

b. Health;

5
 c. Military; and

d. Other expenses

3. What is their GDP per capita from 2013-2017?

4. What is the effect of government expenditure on the GDP per

capita of the ASEAN countries?

5. What can be proposed actions based on the results of the

study?

Significance of the Study

The results of this study may be beneficial to the

following:

Government. The findings of this study may provide reference

to properly allocate the government budget and avoid misspending

of those budget. Also it would help them to outlay methods to

stimulate the economy when they fall short of their objectives.

Being the policy makers also, this study provides an insight to

assist them in providing and implementing the appropriate policy

necessary to have a productive government expenditure and proper

use of resources within the country.

Economists. The present study may be beneficial in developing

methods for obtaining the data they need in conducting research,

monitor economic trends and also in developing forecast on a wide

variety of issues in the economy.

6
 Future Researchers. This research maybe valuable to the

future researchers who would study the problem related to the

topic. The ideas presented in this study would help them make their

own perspective. Also the results of this research may serve as a

reference material to those who would conduct similar studies.

Scope and Delimitation of the Study

This study focuses in evaluating the economic indicators

affecting the relationship of government expenditure and economic

growth of ASEAN countries and whether efficiency has an influence

among the two variables. There are ten members present in this

international organization consisting of Indonesia, Malaysia,

Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar,

and Cambodia. Also, the study covers the period from 2013 to 2017

for its data gathering. We use secondary data obtained from the

Worldbank (2019) as the source in conducting the study and

evaluating its statistical analysis.

One of the limitations in this study is that researchers does

not obtain primary data in gathering information which addresses

specific research issue and may result to better data

interpretation. Another limitation is that economic growth is

viewed as relative concept, hence, various researchers came up

with different perspectives since the current study focus only on

7
the government expenditure in relation to economic growth. This

study focused on the 10 countries of ASEAN organization as a whole

and the other organizations of the countries are not included in

the study.

Definition of Terms

The following terms are conceptually and operationally

defined as used in this study to facilitate better and clearer

understanding.

Government Expenditure. It refers to expenses incurred by

the government for the maintenance of itself and provision of

public goods, services and works needed to foster or promote

economic growth and improve the welfare of people in the society

(Aigheyisi, 2013). As applied in the study, it is the amount of

expenditures which pertains to education, health, military,

agriculture and tourism.

Economic Growth. It refers to the process of increasing the

economy’s ability to produce goods and services. It can be achieved

by increases in land, labor, capital and technology and is seen as

outward shifts in the production possibilities frontier and as

rightward shifts in the aggregate supply curve (Amos, 1987). In

this research, it will pertain the GDP per capita of each country.

8
 Land Area. In this research, it refers to a country's total

area, excluding area under inland water bodies, national claims to

continental shelf, and exclusive economic zones. In most cases the

definition of inland water bodies includes major rivers and lakes.

Population Density. As applied in the study, as based on

the de facto definition of population, which counts all residents

regardless of legal status or citizenship. The values shown are

midyear estimates.

Political System. It refers to a three covered dimension

which correspond to core institution of regime types of democracy,

oligarchy and despotism. (Sandberg & Lundberg, 2012). As used in

the study, it is the political system that is use in government of

ten members of ASEAN countries.

Labor Force. In this research it comprises people ages 15 and

older who supply labor for the production of goods and services

during a specified period. It includes people who are currently

employed and people who are unemployed but seeking work as well as

first-time job-seekers.

Education. It refers to current operating expenditures on

education. (Mallick, Das, & Pradhan, 2016). As used in this

research, it is expressed as a percentage of GDP. It includes

expenditure funded by transfers from international sources to

9
government. General government usually refers to local, regional

and central governments.

Health. Defined on the basis of their primary or predominant

purpose of improving health, regardless of the primary function or

activity of the entity providing or paying for the associated

health services (Edeme, Emecheta, & Omeje, 2017).

Military. In this study, this expenditure includes all

current and capital expenditures on the armed forces, including

peacekeeping forces; defense ministries and other government

agencies engaged in defense projects; paramilitary forces and

military space activities. Such expenditures include military and

civil personnel, including retirement pensions of military

personnel and social services for personnel; operation and

maintenance; procurement; military research and development; and

military aid.

Other Expenses. As used in this study, expense is cash

payments for operating activities of the government in providing

goods and services. It includes compensation of employees (such as

wages and salaries), interest and subsidies, grants, social

benefits, and other expenses such as rent and dividends.

10
 CHAPTER II

REVIEW OF RELATED LITERATURES AND STUDIES

This chapter presents a review of related literatures and

studies that deals with the relationship between government

expenditure and economic growth in consideration of efficiency of

allocation of the government expenditure.

Related Literature

The researchers came across several related readings. These

literatures have contributed information pertinent to the present

study.

In Taxation, Government Spending and Economic Growth, (Booth,

et al., 2016) assert that:

The primary issue is the size of state expenditure compared

with national output and that the choice between tax and bond

finance is a secondary consideration. Ultimately, government

expenditure is financed either by taxes levied now or deferred

taxes. If it is financed by borrowing – or deferred taxation –

there are supply-side effects on government borrowing, the

crowding out private sector activity as a result of pressures on

capital markets or the inflow of capital from overseas raising the

11
exchange rate. Furthermore, consumers might reduce expenditure in

anticipation of a higher tax burden in the future.

The literature cited is important to the present study. It

signifies that government expenditure is finance through taxes and

deferred taxes that would affect the private sector activity which

is also important on measuring to its effect on economic growth

and the government should consider the efficiency of their taxation

system and it should be for the benefit of public and private

sector rather than to endanger the private sector sustainability.

Financing public projects by using external financial

resources bring on new economic resources and can trim down

crowding-out effects resulted from increasing government

expenditure (Shen, Yang, & Zanna, 2015).

The literature cited that government expenditure is more

effective with regards to promoting economic growth when financial

resources came from outside sources because the government should

take it into consideration that the reason for borrowing financial

resources should be from sources that would help the government

expand their fund and thus operate on a larger scale than borrowing

through internal sources in which it only redistributes the wealth

of government within.

The government expenditures are generally made for the public

goods. The major government expenditures are national defense,

12
social insurance and services, and education and other expenses

(Henderson & Poole, 1991). In addition, the author also said that

the growth of the urban population increases the demand for public

service relative to a rural setting. These in effect requires more

regulation, planning and spending for public safety and health and

much greater expenditures per capita on other expenses.

The above mentioned literature has a bearing to the present

study because it guided the researchers to understand the

components of government expenditure and this must result to the

benefit of the public. Thus, if the population grow, the more

expenditure and requirement are needed to efficiently provide

service to the public that in turn, will improve economic growth.

(Dizaji, Farzanegan, & Naghavi, 2014) mentioned how quality

of political institution affects the distribution of government

budget in Iran which results to positive effect to democratic

institution that indicate a significant negative response of

military expenditure and significant positive response of

education expenditures and higher provision of goods and services

which needs a larger portion of population demand and a small

military group.

The above cited study are of great relevance to the present

study because they claimed that the political institution

specifically democratic institution has a positive impact on

13
government expenditure. Thus, emphasizing the need of population

and reducing military group. This is supported by the present study

who wants to determine the effects of political system to

government expenditure such as education, health, military and

other expenses that may affect the economic growth of the ASEAN

country.

According to (Tullao Jr., 2003) Globalization process has to

consider on improving the quality of higher education

domestically, by which education is defined as an investment in

human capital that contributed in explaining increases in labor

productivity as well as national income of many nation. He also

states that, opening the education sector of countries in the ASEAN

region may also contribute to the growing of external pressures

for the Philippines to evaluate reason why the countries considered

the liberation of their educational services.

The idea of Tullao Jr. has a huge bearing to the present study

because it tackled the importance of expanding the quality of

education that will help the country to compete globally in order

to uplift the economy. Thus the government should invest heavily

in education in order to improve productivity and to enhance their

growth potential.

14
 In Philippine Daily Inquirer, (Cruz, 2018) said that:

“In the few instances where the Philippine educational system

is referred to in the World Bank 2018 Global Education Development

Report (WDR 2018), the weak links in spending and the learning

chain are discussed, based on a 2016 World Bank study on

expenditure tracking and qualitative service delivery in basic

education in the public schools. Among the reasons cited for these

weak links are: “funds do not reach schools or are not used for

the intended purpose; decisions on the use of public funding are

not coherently aligned with learning; government agencies lack the

capacity to use funding effectively.””

Cruz considered one of the elements of government expenditure

which is education. It is significant because we aim to use

education in our study as one of the components of government

expenditure that may affect economic growth.

According to (Shaaba & Nicholas, 2018), military expenditure

is an important sector in many African countries’ government

expenditure budgets, therefore, it need continuous implementation

of appropriate reforms and policies in order to ensure that

resources allocated to the defense sector is inclined to its

functions.

They stated that military expenditure has a significant role

in the country’s budget. It is related to the current study because

15
the authors used military expenditure as one of their main

variables and we also intend to use military as one of the

components of government expenditure.

Health expenditure differs in amount in every country. In

high income countries, health expenditure is over USD 3000 per

capita on average, while low income countries it is only USD 30

per capita. There were 64 countries which health expenditure was

less than USD 100 per capita. Health expenditure varies with

respect to economic growth, some countries allotted more than 12%

of GDP on health, while others allotted less than 3% on health.

(Ke, Saksena, & Holly, 2011)

Health expenditure varies among countries, they spend it

above average while others spend it below average. It is

significant in the current study because health expenditure is one

of the components of government expenditure in which we intend to

use. Also, we like to know how ASEAN countries allocate their fund

in health sector.

There are three positions taken of critics of Keynesian

economics. One of these three positions stated that government

policy is likely to be ineffective in increasing aggregate demand.

Example of this is when public expenditure increases, private

expenditure decreases. Particularly, the aim of public policies is

to increase either consumption or government expenditure reduce

16
investment, and accordingly reduce the economic growth (Stiglitz,

1988).

This literature considers that there is a domino effect on

the variables particularly government expenditure to private

expenditure that will result a decrease on economic growth. Hence,

it is deemed significant to the present study.

(Amadeo, 2018) assert that the Keynesian macroeconomics

theory says that the government should increase GDP to boost

economic growth. Amadeo further stated that the Keynesians believe

consumer demand is the primary driving force in an economy. Hence,

the theory supports expansionary fiscal policy - a form of fiscal

policy that decreases taxes and increases government expenditure

to overcome recession.

The above article is significant to the present study because

Keynesian macroeconomics theory serves as a concept in conducting

the study. Also, consumer demand is the primary drive to boost

economic growth by way of increasing GDP.

Related Studies

Many related studies were reviewed and weighed by the

researchers in order to give clarifications to the present study.

17
 In conceptualizing this study, the following related studies

were established to help the researchers.

(Dudzevičiūtė, Šimelytė, & Liučvaitienė, 2018) concluded that

the eight EU countries have significant relationship between

government expenditure and economic growth. There is a positive

relationship in France, Belgium, Portugal and Cyprus while there

is a negative relationship in Sweden, Germany, Poland and Slovakia.

For the remaining countries the relationship between the main

variables is weak and statistically insignificant.

The above study used GDP per capita as one of their research

variables in determining the relationship between government

expenditure and economic growth which is similar to the variable

that the researcher intend to use in the present study.

(Taiwo & Abayomi, 2011) shows clearly that there is a positive

relationship between GDP and recurrent and capital expenditure.

Given the fact that in Nigeria there is an established relationship

between economic growth and government expenditure, it can

therefore be said that the higher the government expenditure, the

higher the level of economic growth (ceteris paribus) and the lower

the government expenditure, the lower the level of economic growth

of the nation.

The study above is concerned with the relationship of

government expenditure and economic growth similar to what the

18
researchers tend to analyze in their present study. However, the

previous study is mainly focus on the impact of government

expenditure either capital or recurrent expenditure to the

economic growth while the current study pertain to the specific

government expenditure such as education, health etc. rather than

the government expenditure in general.

(Kimaro, Keong, & Sea, 2017) found that the government

expenditure accelerates economic growth of low income countries in

Sub Saharan Africa. While the government efficiency does not show

any evidence to increase the effects of government expenditure on

economic growth in the region. Government efficiency in Sub Saharan

African low income countries is not effective towards the

allocation of public expenditure to enhance economic growth.

The study provide similar to the present study because it has

the same concept which address the problem whether government

expenditure accelerates economic growth. It differs from the

present study in a way that it consider that effect when government

expenditure are allocated efficiently and the extent of the current

study is focus on the 10 members of the ASEAN countries which widen

the scope of the study.

(Kabuga & Hussaini, 2015) performed a study that provide the

answer on whether there is a correlation between government

expenditure on education and economic growth using annual time

19
series data for the period of 1981 to 2013 and other test and

estimation which conclude that government expenditure on education

has both capital and recurrent possitively influence economic

growth, although its significant effect is in only in the long-

run.

The study of Kabuga and Hussaini relates to the present study

for in help the researchers to understand that government should

increase the budget that they have to allocate on education

expenditure to improve its effect on economic growth of Nigerian,

but it differs in a way that the reffered study focused only on

education expenditure while the present study focuses not only on

education but also on other components of government expenditure.

In the study of (Hasnul, 2015), highlighted that a larger

government expenditure may lead to a lower economic growth. As

they classify the government expenditure into some categories,

only two categories of government expenditure, namely development

expenditure and housing expenditure, significantly lead to a lower

economic growth. Moreover, they found that education, defense,

healthcare, and development expenditure do not significantly

contribute to the economic growth. Given the negative relationship

between the government expenditure and economic growth, it may be

a signal of which government expenditure is not a cause of economic

growth, as what have been suggested by Wagner’s law.

20
 Similarly, this study explores the relationship between

government expenditure and economic growth using various

components of government expenditure such health and education

which is also use in the present study. On the other hand, Hasnul

split the government expenditure into two categories, namely the

operating expenditure and development expenditure which is

different to the present study because it does not signify a

category on government expenditure.

(Carter, Craigwell, & Lowe, 2013) suggested that the total

government expenditure produces a drag on economic growth,

particularly in the short-run. More specifically the results

indicate that while outlays on health and social security have

little influences on per capita economic growth; government

expenditure on education typically has a significant and negative

impact on growth, both in the long and short runs. In addition,

reallocations of government expenditure from one component to

another may have growth-enhancing effects without having to change

the level of government expenditure.

The aforementioned study is the same with the recent study

since they both addresses the relationship of the components of

government expenditure and economic growth. However, the present

study does not consider the effect of particular government

21
expenditure on economic growth in the long and short run since 10

countries is ought to be study.

The study of (Maingi, 2017), concludes that the composition

of government expenditure matters for economic growth. Expenditure

on economic affairs, defense, education, government investment,

general administration and services and physical infrastructure

have positive impacts on economic growth in the long-run. In the

short-run health care, public order and national security have

positive impact on economic growth, whereas, public debt servicing

has negative impact on economic growth.

The study of Maingi supported the present study in a way that

it focused on the impact of government expenditure in the economic

growth and the relationships of the two variables. Thus, the said

study and the field under study share comparable point of

reference. Like in the present study, the study of Maingi identify

a specific component on government expenditure which affects

economic growth. Unlike to the previous study, the present study

does not consider the effect of government expenditure in economic

growth as short-run or long-run, considering that it was 10 country

that we ought to study.

(Sagarik, 2014 ) studied Public Expenditures on Health in

ASEAN Member Countries: An Analysis of Trends and Policy

Determinants, found that there is a direct linkage between the

22
government health expenditure and the number of older persons and

industrialization, while there is an indirect linkage between the

government expenditure on health and the economic growth,

urbanization, old-age dependency ratio, older population and

economic openness. This was based on the data of ASEAN countries

he gathered and analyze using regression analysis from 2002 to

2011.

Sagarik study is similar with the present study for they both

focus on ASEAN countries and the particular government expenditure

which is the health. The regression analysis was used by the

previous study which the present study intend also to use. However,

the present study aim to not only focus on government expenditure

on health but includes the military, education and other expenses

and consider other factors that may affect these particular

government expenditures like the land area, population density,

political system and labor force of a country in analyzing the

relationship with economic growth which is the independent

variable.

(Awuh, 2018) examined how public expenditure affects economic

growth. As a result, this shows that a relationship exists between

government expenditure and economic growth. While some component

shows negative results between public expenditure and economic

growth, others exerted positive effect. As expected, public

23
expenditure on education, transport, and communication,

agriculture, capital expenditure seems to be significant. While,

in advanced countries expenditure on health, total expenditure and

current expenditure are negative and significant, but health is

not significant. On the other hand, expenditure on agriculture,

capital expenditure transport and communication appear to be

positively related to economic growth.

The study of Awuh is similar to the study that the researchers

will conduct because they are both concerned to the relationship

of government expenditure and economic growth and how they specify

government expenditure that affect economic growth. On the other

hand, the sample set of the above study included developing and

advanced countries while the present study used ASEAN countries as

a population disregarding whether they are developing or advanced

countries.

(Hao, Fun, Chung, & Loong, 2013) studied the government

expenditure components that affect economic growth in Malaysia and

found that there is a significant and positive relationship between

the government expenditure and economic growth as whole. On the

other hand, the impact of the independent variables which consists

of education, military, transportation, and general administration

is identified and show that only transportation and education

sector are significant towards the economic growth.

24
 In this study they did proved that government expenditure has

a significant and positive relationship to the economic growth.

They also used specific government expenditure such as

transportation, education, military and general administration

expenditure. The current study also want to analyze the government

expenditure in terms of: education, military, health and other

expenses, and the economic growth. However, the present study

addresses the 10 members of ASEAN countries and not only one

country.

(Magazzino, 2014) used several panel econometric techniques

in order to explore the relationship between government revenue

and expenditure in the ASEAN countries for the years 1980-2012.

Panel cointegration analyses revealed an empirical support to

long-run relationship between government expenditure and revenue,

both in former ASEAN-6 member states and in ASEAN-10 countries.

Granger causality analyses showed mixed results, although five out

of ten ASEAN countries (Indonesia, Laos, Malaysia, Philippines and

Singapore), the "tax-and-spend" hypothesis holds, so that changes

in government revenues (taxes) lead to changes in government

expenditure.

The above study of Magazzino mainly focused on the

relationship between government expenditure and government revenue

of both ASEAN-6 and ASEAN-10 countries. The empirical findings of

25
the said study revealed that ASEAN-10 countries economic growth is

faster than the ASEAN-6 together with small government size indices

and given the fact that expenditure and revenue are lower. This

study is similar to our present study for it also covers the ASEAN

countries. On the other hand, our study will not consider the two

subgroups which are the ASEAN-6 and ASEAN-10. Magazzino assessed

the relationship between revenue and expenditure while the present

study tends to examine the linkage between government expenditure

and economic growth.

Synthesis of-the-Art

Several literatures and studies have been reviewed and

analyzed by the researchers concerning the effect of government

efficiency through government expenditure to economic growth.

Booth et. al and Wenyi Shen et al affirmed that government

expenditure can be financed in two ways, either internally through

taxes or use of external financial resources. They further stated

that it is much better to finance externally to prevent the

crowding-out effect on the private sectors activities.

Maggazino also concluded that the “tax and spend” hypothesis

holds so that changes in government revenues (taxes) lead to

changes in government expenditure.

26
 The study of Stiglitz said that the aim of public policies is

to increase either consumption or government expenditure reduce

investment, and accordingly reduce the economic growth.

Dudzevičiūtė et al. state that there is a significant

relationship between government expenditure and economic growth in

relation with the main variable depending on the level of GDP per

capita and government expenditure of a country.

In the books of Henderson & Poole discussed that a population

have a significant effect on government expenditure thus affect

economic growth.

Cruz state that there is a weak link in spending and the

learning chain, based on a 2016 World Bank study on expenditure

tracking and qualitative service delivery in basic education in

the public schools. On the other hand, Kabuga, Hussaini and Tullao

Jr. emphasize that the allocated fund for education should be

increase to improve its effect on economic growth.

In addition, Military and health expenditure is also an

important sector in government contribution budgets but health

expenditure vary with respect to economic growth as mentioned by

Shaaba, Nicholas and Ke, Saksena and Holly.

According to Dizaji et al. the quality of political

institution affects the allocation of government budgets in which

27
military expenditure response negatively and education response

positively.

Both Hasnul and Carter et. al showed that categorizing

government expenditure into a development and housing expenditure

drag economic growth, and they found that health, defense and

education do not significantly contribute to economic growth. On

the contrary with Maingi and Awuh that indicate, there is an

established relationship between government expenditure and

economic growth classifying as to defense and education that have

an impact on economic growth in the long-run and health care,

public order and national security has a positive impact on

economic growth in the short-run. Kimaro, Taiwo et. al and Hao et.

al supported also that there is a direct relationship between

government expenditure and economic growth.

Sagarik highlighted that there is a direct linkage between

the government health expenditure and the number of older persons

and industrialization. On the other hand, there is an indirect

linkage between the government expenditure on health and the

economic growth, urbanization, old-age dependency ratio, older

population and economic openness.

Amadeo emphasize the use of Keynesian macroeconomics theory.

Amadeo state that the government should boost the demand in order

28
to increase the economic growth and it believes that demand is the

main driving force that will help the economy to grow.

Gap Bridged by the Study

The numerous studies presented were centered in understanding

the linkage between the particular government expenditures and

economic growth while some studies are concerned only with the

effect of the countries socio-demographic profile in allocating

the budget to a government expenditure. They also used different

methods to address their concerned which produced different

conclusions.

On the other hand, the present study consider the specific

socio-demographic profile of the ASEAN countries in analysing the

relationship of government expenditure on economic growth. This is

the gap bridged of the study.

29
Theoretical Framework

Keynesian Macroeconomics Theory

Keynesian view has created a massive attention among

researchers with many extensive empirical works that have been

carried out to examine this theories but unfortunately the outcome

of these studies arrived at different results. The effect of

government expenditure in economic growth can be signicant,

insignificant or has no effect at all.

Significant causality can be running government expenditure

to economic growth and vise versa. This research is adapting the

Keynesian view to examine the relationship between government

expendtiture and economic growth. As earlier mentioned, several

studies resulted into mixed conclusion. Some concludes that it has

no relationship, while some argued there was some signicant

relationships lies within. However we presumed that the outcome of

30
 the same study will possibly lead to either one of the existing

results.

Conceptual Framework

INPUT PROCESS OUTPUT

Socio-demographic
profile of ASEAN
countries in terms of:
a. Land area
b. Population
density
c. Political
system; and
d. Labor force
Government expenditure
in terms of: Document Policy /

a. Education Analysis Policy Implementation

b. Health
c. Military; and
d. Other expenses
GDP per capita from
2013-2017
Effect of government
expenditure on GDP per
capita of ASEAN
countries

Feedback

FIGURE 2. CONCEPTUAL FRAMEWORK

31
CONCEPTUAL PARADIGM

The researchers will utilize the input-process-output (IPO)

model of the study. Shown in figure 2 is the conceptual framework.

The input includes the socio-demographic profile of ASEAN

countries in terms of (a) land area, (b) population density, (c)

political system, and (d) labor force. Also, it includes the

government expenditure in terms of (a) education, (b) health, (c)

military, and (d) other expenses. Furthermore, it includes the

effect of government expenditure on the GDP per capita of ASEAN

countries.

The process will utilize document analysis. The output of

this study will be a proposed policy regarding distribution of

appropriate funds in order to enhance ASEAN members’ economy. The

feedback will reflect the interrelationship between the variables

of the study. Feedback will also be given as to the effectiveness

of the output to the input and necessary to the process undertaken.

32
 CHAPTER III

THE RESEARCH DESIGN AND METHODOLOGY

This chapter will present the methods used by researchers in

this study. It will describe how the research was carried out in

terms of research design, population, instrument, data collection

methods, and data analysis.

Research Design

The study will evaluate the significance of government

expenditures on economic growth of ASEAN countries with the end

view of proposing a policy that will be useful to boost economic

growth. The research design will be causal in nature and will make

use of secondary data only.

The data will be from 2013-2017, analyze and interpreted using

appropriate statistical measures.

The Population

The population in this study will be composed of all ten

members of ASEAN countries which are the Philippines, Myanmar,

Laos, Singapore, Indonesia, Thailand, Malaysia, Brunei, Cambodia,

and Vietnam.

33
Data Collection Procedure

We will collect data from the World Bank database, other

governmental databases, journals, articles, legal bases, and

administrative data since researchers will use secondary sources.

Then the data gathered will be analyzed and interpreted

accordingly.

Data Analysis Procedure

The data will be analyzed using panel data analysis. This is

primarily applicable to data which involve the same subjects for

a certain number of years. This will require whether the pooled-

ordinary least squares, random-effects general least squares, or

fixed effects model is suitable.

Pooled-ordinary least squares

In a pooled OLS, the researchers combine all the cross-

sectional data and have a grand regression for variables, but doing

this might not address the unique characteristics of each data

that might have a significant effect on economic growth because it

maybe be fixed or constant throughout the years being analyzed. We

intend to apply the unobservable attributes constant in order to

examine the effects of variables in economic growth which pooled

OLS does not account for (Wooldridge, 2013).

34
Fixed-effects model

The fixed-effects model can explicitly account for the unique

characteristics of the ASEAN countries except those attributes

that do not change over time.

F-test is to be perform to test the appropriateness of the

fixed effect model wherein the null hypothesis is that, all the

subject of this study would have a common intercept. Pooled OLS

would be sufficient model for the study if we fail to reject the

null hypothesis (Cotrell & Lucchetti, 2017).

Random-effects model

If the unobserved attributes is uncorrelated with the

explanatory variables, the random effects model is applicable to

use. As compared to FEM, it offers a richer set of hypotheses that

can be tested even though it has a strict requirement. We can

explicitly examine the effects of constant variables over time

with the dependent variable. We use Breusch-Pagan to assess the

appropriateness of the REM, challenging the null hypothesis that

the variance of the individual-specific constant error terms is

equal to zero. The pooled OLS might be sufficient if we fail to

reject to null hypothesis.

35
 The difference between FEM and REM are observe to know if the

estimates are consistent by performing the Hausman test. The REM

estimates are said to be inconsistent and will reject the null

hypothesis if the value of Hausman method is large. However if

the value of Hausman measures is not large, it only proves that

there is no correlation between the independent variables and error

terms. Hence, REM is the appropriate model to be use.

The econometric model for this analysis will be as follows:

𝐺𝐷𝑃𝑖𝑡 = 𝛽0 + 𝛽1 𝐴𝑖𝑡 + 𝛽2 𝑃𝑜𝑝𝑖𝑡 + 𝛽3 𝑃𝑜𝑙𝑖𝑡 + 𝛽4 𝐿𝑎𝑏𝑜𝑟𝑖𝑡 + 𝛽5 𝐸𝑑𝑢𝑐𝑖𝑡 + 𝛽6 𝐻𝑒𝑎𝑙𝑡ℎ𝑖𝑡 + 𝛽7 𝑀𝑖𝑙𝑖𝑡𝑖𝑡

+ 𝛽8 𝑂𝑡ℎ𝑒𝑟𝑖𝑡 + 𝜇𝑖𝑡

Where:

β – Coefficient

i – Country

t - Time

GDP – GDP per capita

A – Land area (sq. km)

Pop – Population Density

Pol – Political system

Labor – Labor force

Educ – Education

36
Health - Health

Milit – Military

Other – Other expenses

µ - Error term

37
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