Government size and economic growth: an application of the smooth transition regression model

This article employs a smooth transition autoregressive model to investigate the effects of government size (measured as the share of government consumption expenditure in gross domestic product) on economic growth using South Korea, Malaysia, Singapore, Taiwan and Thailand as sample countries during the period 1961 to 2004. The empirical results reveal that there is a nonlinear relationship among variables for each country except Malaysia and confirm the view of Barro (1990) that the government size over a certain threshold will have an adverse impact on economic growth rate for Korea, Taiwan and Thailand. Through the smooth transition autoregressive framework, we find that the estimated threshold of government size is 11% for most countries while the threshold government size of Taiwan is 16% and further conclude that the bigger government size is not really the better.