ABSTRACT
This study examines and revisits the relationship between economic growth and government size in the context of selected South Asian Nations, BRICS and other emerging nations by using two-sets of empirical modeling over the period 2007–2016 within the broad framework of inverted U-shaped hypothesis, given by Armey Curve. The first set has employed system GMM technique to explore the presence of the Armey curve hypothesis using the square term of government size, while the second set has used the threshold regression using system GMM panel modeling to investigate the subsequent reversals (tipping point). The key findings denote the existence of a nonlinear association in the case of selected emerging economies, and hence endorse the validity of the Armey curve. The projected threshold levels (as shares of GDP) are 24.31 percent for the government total expenditures, 12.92 percent for consumption spending, and 7.11 percent for investment spending. We have observed that a rise in the public spending (size) results in a substantial increase (decrease) in the growth rate when the public spending is before (after) the optimal threshold level, indicating a nonmonotonic association. The findings recommend that public spending could only be a short-term measure to deal with crisis situations in any nation but not a long-term solution.
