Effect of government expenditure on real economic growth in ECOWAS: assessing the moderating role of corruption and conflict

The paper examines whether and how government expenditure drives real economic growth in ECOWAS countries, and how this relationship is moderated by corruption and violent conflict. The motivation stems from persistent debates on the growth effects of public spending—Keynesian arguments emphasize demand stimulation, while counterarguments highlight potential crowding out, inflation, and inefficiencies. In many African contexts, high levels of corruption and conflict can distort spending, undermine service delivery, and weaken growth impacts. ECOWAS has experienced rising government outlays without commensurate growth, prompting investigation into institutional and conflict-related factors that may condition the effectiveness of spending. The study aims to quantify the long-run relationship between government expenditure and real GDP, and to assess whether better control of corruption enhances, and whether violent conflict diminishes, the growth returns to public spending.

The review defines government expenditure as the resources used by the state to deliver public goods and services, encompassing both recurrent and capital spending (Fluvian, 2006; Drucker, 2007). It surveys theoretical perspectives: Keynesian views posit that public spending stimulates aggregate demand, while other strands warn of negative effects via crowding out, inflation, and debt dynamics. Empirically, corruption generally hinders growth by distorting allocation, reducing investment efficiency, and shifting spending toward less productive categories (e.g., military) and large, opaque projects conducive to rent-seeking, at the expense of health and education. Yet the literature notes mixed findings about direct versus indirect growth effects of corruption and potential context-dependent “grease vs. sand” roles. Violent conflict diverts resources from productive uses, destroys capital, elevates security outlays, and undermines stability, discouraging trade and investment, thereby depressing growth. Theoretical frameworks referenced include: (a) open-economy models linking exchange rates to output through goods, money, and asset markets; (b) the Collier-Hoeffler greed-and-grievance framework explaining conflict’s adverse growth effects via capital destruction and resource diversion; and (c) institutional theory emphasizing inclusive institutions that protect rights and enable broad participation, in contrast to extractive institutions that foster corruption. These perspectives motivate interaction terms between government expenditure and corruption (COR*TGE), government expenditure and conflict (CONF*TGE), and corruption and conflict (COR*CONF) to capture moderating effects on growth.

Design: Panel econometric analysis for 15 ECOWAS countries over 1999–2021 using panel cointegration techniques to estimate long-run relationships between real GDP and its determinants. Variables: Dependent variable: real GDP (log-transformed). Key independent variables: total government expenditure as % of GDP (TGE), foreign exchange rate (log), control of corruption index (COR, WGI −2.5 to 2.5; higher indicates better control), conflict intensity (CONF, Major Episodes of Political Violence, scaled 0–10). Interaction terms: COR*TGE, CONF*TGE, and COR*CONF to evaluate moderating roles. Data sources: World Development Indicators (TGE, exchange rate), Worldwide Governance Indicators (control of corruption), Center for Systemic Peace MEPV dataset for conflict. Sample includes 15 ECOWAS members: Benin, Burkina Faso, Cabo Verde, Gambia, Ghana, Guinea, Guinea-Bissau, Côte d’Ivoire, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo. Econometric procedures: (i) Panel unit-root tests (ADF, PP, IPS) to assess stationarity; (ii) Pedroni (2001, 2004) panel cointegration tests (within- and between-dimension) to test for a long-run relationship; (iii) Estimation of long-run cointegrating coefficients using Dynamic OLS (DOLS) and Fully Modified OLS (FMOLS), which correct for endogeneity and serial correlation; pooled OLS (POLS) provides a baseline comparison. Variables are log-transformed where appropriate, yielding long-run elasticity interpretations for the cointegration coefficients. Four model specifications are estimated: baseline without interactions; with COR*TGE; with CONF*TGE; and with COR*CONF. Marginal effects of moderators are examined following approaches in related ECOWAS/Africa studies.

- Descriptive patterns: Average government expenditure in ECOWAS rose from about 10.7% of GDP in 1999 to roughly 13% in 2021 (average 11.4% in 1990–2009 vs. 12.7% in 2010–2021). Cape Verde and Niger recorded the highest average expenditure shares, while Nigeria and Gambia were lowest. Average real GDP growth was highest in Ghana (≈5.7%) and Burkina Faso (≈5.6%). - Cointegration: Pedroni panel cointegration tests indicate long-run cointegration among variables across the four model specifications, supporting stable long-run relationships between real GDP, government expenditure, exchange rate, corruption, conflict, and interactions. - Government expenditure and growth: Across DOLS and FMOLS estimates, total government expenditure has a positive and statistically significant long-run effect on real GDP. The text notes a baseline DOLS coefficient of approximately 0.513 for government expenditure (interpreted as a positive elasticity), indicating that higher public spending is associated with higher real output in ECOWAS. - Moderating role of corruption: Interaction results (COR*TGE) indicate that stronger control of corruption enhances the growth impact of government expenditure—i.e., better governance increases the efficiency and effectiveness with which spending translates into real growth. - Moderating role of conflict: Interaction results (CONF*TGE) show that higher levels of violent conflict weaken the growth impact of government expenditure—conflict shifts resources to security and reduces the productivity of spending, lowering its contribution to growth. - Interaction between corruption and conflict (COR*CONF): Estimates generally show adverse effects on growth when corruption and conflict co-occur, consistent with compounded negative institutional and security environments.

The findings directly address the research question by demonstrating a positive long-run relationship between government expenditure and real GDP in ECOWAS, contingent on institutional quality and security conditions. Enhanced control of corruption strengthens the productivity of spending—consistent with theories of inclusive institutions and efficient allocation—while violent conflict reduces the effectiveness of expenditure by diverting funds to non-productive uses and eroding capital and stability. These results underscore the importance of governance reforms, anti-corruption measures, and conflict mitigation as complementary policies to fiscal expansion. For policymakers, the implication is that scaling up government expenditure alone is insufficient; its growth payoff depends on institutional capacity, transparency, and peace and security. Investments in infrastructure, education, and R&D can be growth-enhancing, but their effectiveness is conditioned by corruption control and conflict levels.

The study concludes that government expenditure contributes positively to real economic growth in ECOWAS countries, but the magnitude of this effect depends on governance and security contexts. Stronger control of corruption improves the efficiency and growth impact of public spending, whereas higher conflict intensity diminishes it. Policy recommendations include strengthening anti-corruption frameworks, improving public financial management and transparency, and reducing conflict and insecurity to maximize the growth returns to government expenditure. Future research could explore heterogeneity across spending categories, dynamic effects, and potential non-linearities, as well as country-specific institutional reforms that enhance spending efficiency.