Impact of Government on Growth and Trade

Abstract

In this paper we attempt to test the development economist's perceptions of the negative contributions of governmental activities, as well as the positive contributions of other activities, to growth. This paper provides evidence on the importance of government behavior for economic growth and, in so doing, attempts to start building a bridge between the development economics literature and the new growth theory. The focal point is the recognition that governments do more than spend and tax in manners that maximize social welfare functions: they influence incentives and regulate in ways that affect private behavior, and their spending, even on infrastructure, is not always optimal.