Social security expenditures and economic growth : A heterogeneous panel application

Purpose – The purpose of this paper is to re‐examine the long‐run co‐movement and causal relationship between GDP and social security expenditures. Design/methodology/approach – The paper uses panel data unit root tests and panel cointegration tests, as well as estimation techniques appropriate for heterogeneous panels such as fully modified OLS. Data are employed on 12 Asian countries from 1972 to 2000. Findings – The cointegration test results show strong evidence in favor of the existence of a long‐run equilibrium cointegrating relationship between GDP, capital stock and social security expenditures after allowing for heterogeneous country effects. Regarding the panel‐based error correction model and the Granger causality test, there are long‐run, bi‐directional causal linkages between social security expenditures and economic growth. In addition to the robust test, they display similar results. Originality/value – The paper shows that in every moment, economic growth must be based in the social welfare policy contiguously, and the economic growth process can allow the social welfare policy to proceed contiguously