Abstract:
The need to realise steady economic growth, measured in this research by Gross Domestic
Product (GDP), has ignited a plethora of studies about the contributors of economic growth
and their optimal levels. Government expenditure is one contributor to economic growth. From
a theoretical standpoint, optimal government size is depicted by an inverted U-curve known as
the Armey curve which is hypothesised between the relationship of government size and
economic growth. Empirical literature provides evidence that optimal government size is
between 20-30 percent a share of GDP. However, little has been done to investigate the optimal
level of isolated components of government spending that maximizes economic growth. One
component of government spending that has gained limelight over the past decade is that of
social assistance. Defined as public expenditure spent as cash and food transfers to the poor,
this research uses social assistance expenditure to assess its optimal level that maximizes
growth. This is important because some policymakers are concerned about the ballooning
budgets directed at social assistance, and argue that the scarce resources need to be transferred
to other social services sectors such as health and education. Basing on the panel-data accessed
from the World Bank, this research uses the quadratic equation model to determine the optimal
level of social assistance for African and Organisation for Economic Co-Operation and
Development (OECD) countries covering the period 2009-15. The finding is that the optimal
level of social assistance spending for African and OECD countries is 3.2 percent of GDP and
29.4 percent of GDP respectively. The study also finds that both African and OECD countries
operate below the optimal levels and it is suggested that they need to increase social assistance
spending in order to realize positive contributions to economic growth.
