Government Expenditure and Economic Growth : Testing for Nonlinear Effect among SADC Countries, 1994-2017

This study analysed the nonlinear effects of government spending on economic growth in 10 Southern African Development Community (SADC) countries from 1994 to 2017, using BARS theory. The study employed panel smooth transition regression (PSTR) model to determine the threshold at which excessive government expenditure hampers economic growth. The empirical findings show that a nonlinear effect exists between government expenditure and economic growth, where the size of government expenditure is found to be 25.40% of GDP, above which government expenditure causes a decline in economic growth in the SADC region. The findings confirm the existence of the BARS inverted U-shape. This study proposes that policymakers ought to formulate prudent fiscal policies that encourage government expenditure, which would improve growth for those countries below the estimated threshold point. Those countries approaching the threshold point need to monitor their government spending so that it does not surpass the threshold.