Local Government Spending, Economic Growth Spillover Effects Research

The effect on economic growth caused by government expenditure is always a focus in economic research. As we all know, the relationship between government expenditure and economic growth is the first question in federal decentralization. Is decentralization necessary? Relevant literatures mainly focus on fiscal direct economic effect. After the research of Barro(1990) about endogenous economic growth model, most papers turned their eyes on government size and expenditure structure. However, based on the feature and function of government expenditure, that means it can influence neighbor's economic growth.The chapter 1 summarized the most papers about economic effects by government expenditure and competition, which mainly focused on yardstick competition (Besley & Case, 1995). In chapter 2, this paper constructed a simple endogenous economic growth including neighborhood expenditure and spillover index. We used this theoretical model to find out the influence by expenditure and the growth rate at steady state. Chapter 3 explained the empirical model, variable and data, and tested the unit root of panel data. Then defined 4 neighborhood and 2 spillover indices. We regressed and gave explanation of empirical results in chapter 4. It meant that regional neighbor influenced more among 4 neighborhood definitions. There are different sensitivities among east, middle and west regions. East and middle provinces can increase economic growth of their neighbors, while west ones can not. This can support government expenditure behaviors both theoretically and empirically!Considering the flaws of traditional methods, we use fixed effect and random effect of panel data in chapter 4 empirical analysis. This paper also considered both control variables and regional sample research. But there are still imperfectness in this research, which requires further study and method update.