The relationship between public expenditures and economic growth: The case of Turkey

The effects of public expenditures, which have shown an upward trend from past to present, on economic growth are widely discussed in the literature. In this study, the impact of total public expenditures and its components namely defence, health and education expenditures on economic growth has been analyzed theoretically and empirically for Turkish economy. The empirical analyzes of the study are carried out by the use of quarterly data related to the 2006:1-2017:3 period of Turkish economy. The existence of a cointegration relationship between variables is tested by bound test which is developed by Pesaran et al. (2001). The short run and long run relationships between the variables are analyzed by Autoregressive Distributed Lag Model (ARDL). Toda-Yamamoto causality analysis is utilized in order to examine the direction of causality between variables. According to the empirical results, it is determined that there is cointegration relationship between total public expenditures, defence expenditures, health expenditures, education expenditures and economic growth. It is detected that the long run impact of defence expenditures on economic growth is statistically significant and negative while the long run impact of total public expenditures, health expenditures and education expenditures on economic growth is found positive and statistically significant. It is determined that all expenditure items analyzed in the study affect economic growth statistically significantly and negatively in the short run. Causality analysis results indicate that there is a unidirectional causality from total public expenditures to economic growth and a bidirectional causality between health expenditures and economic growth.