The quality of governance, composition of public expenditures, and economic growth: An empirical analysis on Turkey

Governance which came to prominence at the end of 1980s, is defined as "the exercise of economic, political and administrative authority to manage a country's affairs at all levels. It comprises the mechanism, processes and institutions through which citizens and groups articulate their interests, exercise their legal rights, meet their obligations and mediate their differences" in United Nations Development Programme. While governance concept comes to the question with studies made by international institutions in order to measure it, quality of governance brings in literature as well. Quality of governance which is accepted a significant factor on growth, is defined as authorities affect on citizens quality of life. While linear relationship between quality of governance and growth is becoming more of an issue, a requirement for assessing cross country comparison put on forward. Two different methods have used in order to answer these requirements in that dissertation. First method is cluster analysis applying Ward's (1963) Minimum Variance Method. World Bank Governance Indicators dataset, which covers 184 countries for the period 1996-2013, is used in order to analyze, additionally it is aimed to determine Turkey's position on these countries. At the end of this analysis, it is found that Turkey is in the same cluster with Mexico which have poor governance among countries. In the second phase of study, it is aimed to analyze direct affect of governance quality on economic growth and indirect affect through public expenditures in Turkey. Linear multiple variable regression analysis is applied in order to seek relation between quality of governance and economic growth. Public expenditure composition and economic growth relations represents quality of governance's indirect affect on economic growth. Time series analysis is applied for the period 1960-2012 in order to determine relations between education, health, social protection, social expenditures, defense expenditures and economic growth. Direct affect which is measured by linear multiple regression analysis for Turkey is supported a positive and significant relationship between "Regulatory Quality" (RQ), "Government Effectiveness" (GE), "Control of Corruption" (COR), "Voice and Accountability" (VA) and economic growth. Other independent variables "Rule of Law" (RL) has a positive and insignificant relationship; "Political Stability and Absence of Voice" (PS) has a negative and insignificant relationship on economic growth. Indirect affect is analyzed with time series analysis, its results show that although health and educational expenditures create an increase on economic growth; social protection, social expenditures, defense expenditures create decreases on economic growth. Keywords: Governance, economic growth, institutions, composition of public expenditures