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Mohammadou Nourou
''The effect of public spending on growth in oil-rich, conflict-prone countries: the case of Chad''
( 2020, Vol. 40 No.1 )
The aim of this paper is to assess whether the composition of public spending could be used to minimize the growth consequence of fiscal adjustment in conflict-prone countries. We argue that in such countries, reductions in welfare and military spending could have more adverse effects on growth than cuts on other public spending. We test this hypothesis by using a three-stage econometric approach. First, we provide a measure of conflict risk. Second, we estimate a system of simultaneous equations with the risk of conflict and GDP growth as dependent variables; using data from a panel of developing countries. Finally we use the estimated system of simultaneous equations to provide a quantitative post-estimation analysis of the effects of spending cuts, with application to the case of Chad. Results show that welfare spending have the largest and more robust effect on conflict risk and, subsequently, on economic growth. This component of public spending should therefore experience less reductions during fiscal adjustments.
Keywords: Economic growth, military spending, social spending, oil-rich countries
JEL: E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General
H5 - National Government Expenditures and Related Policies National Government Expenditures and Related Policies: General
Manuscript Received : Dec 26 2019 Manuscript Accepted : Feb 22 2020

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