%0 Journal Article
%T Size of government and economic growth: A nonlinear analysis
%A Herath Shanaka
%J Economic Annals
%D 2012
%I Faculty of Economics, Belgrade
%R 10.2298/eka1294007h
%X The new growth theory establishes, among other things, that government expenditure can manipulate the economic growth of a country. This study attempts to explain whether government expenditure increases or decreases economic growth in the context of Sri Lanka. Results obtained employing a productive output series and applying an analytical framework based on second degree polynomial regression are generally consistent with previous findings: government expenditure and economic growth are positively correlated; excessive government expenditure is negatively correlated with economic growth; and investment promotes growth. In a separate section, the article examines Armey¡¯s idea of a quadratic curve that explains the level of government expenditure in an economy and the corresponding level of economic growth [Armey, D. (1995). The Freedom Revolution. Washington, D.C.: Regnery Publishing Co.]. The findings confirm the possibility of constructing the Armey curve for Sri Lanka, and it estimates the optimal level of government expenditure to be approximately 27%. This article adds to the literature indicating that the Armey curve is a reality not only for developed economies, but also for developing economies.
%K government expenditure
%K economic growth
%K Sri Lanka
%K polynomial regression
%K Armey curve
%U http://www.doiserbia.nb.rs/img/doi/0013-3264/2012/0013-32641294007H.pdf