Impact of government expenditure on gross domestic product in east Africa

Abstract

It is important for a country to determine how much government expenditure that should be spent on different sectors of the economy so as to promote economic growth. The study aimed at developing a model that will explain the relationship between government expenditure and GDP in East Africa, i.e. Kenya, Uganda and Tanzania. The study proposed to use nonexperimental research design with data from 1990-2015 and the data was obtained from various sources: World Bank Open Data, IMF data bank. The study focused on four key sectors of the economy: health, infrastructure, education and defense and aimed to conclude on the relationship between government expenditure in these various sectors and GDP, i.e. whether it is positive or negative. The Granger Causality test determines the casual relationship between GDP growth and government expenditure components (Ender, 1995). The study findings indicated that; both Military and health expenditure have a positive significance to economic growth whereas infrastructure and education expenditure have a negative effect on economic growth in East Africa. The governments should emphasize to increase expenditure to military and health so as to influence GDP positively thereby promoting economic growth.