Estimation of the optimal size of government spending in Syria by using ARMEY curve and ARDL methodology

Abstract

This research aims at estimating the optimal size of government spending in Syria. The researcher used Armey curve methodology from the econometrics side, and the Autoregressive Distributed Lag (ARDL) methodology from the statistical side. The study reviewed literature related to research at the national and regional level, where these studies shows that there is a non-linear relationship between government spending and economic growth, this relationship is inverted bell shape. The researcher used World Bank data on Syria in order to estimate the non-linear quadratic function between the government spending and the real economic growth. The results of the estimation are as expected. the sign of parameter of the rate of government spending is positive, while the sign of squared of the rate of government spending is negative and significant, which indicates that the relationship between growth and government spending in Syria can be represented by a parabola with an inverted bell shape (Armey Curve). The results also show that the optimal size of government spending is 16.5% and the limit of the positive impact of this spending is located within the domain [0.144, 0.2262]. The study recommend the financial and economic policy maker in Syria that they must keep the rate of government spending in this area, with the persistent attempt to oncoming the rate of the optimal size (16.5%).