Degree Name

Master of Arts (MA)

Semester of Degree Completion

Fall 2019

Thesis Director

Teshome Abebe

Thesis Committee Member

Ali R. Moshtagh

Thesis Committee Member

Ahmed S. Abou-Zaid

Abstract

Over the years, there have been increasing trends in government expenditures in most countries in Sub-Sahara Africa, but some of the social-economic indicators such as health, unemployment, education, inflation, and the others paint a blurry image of the effect of the rising public spending. It is worrisome to see that pictures painted by the economic indicators show that budgets made by governments in Sub-Sahara Africa look good on paper than their actual effect in the economy (Andrews, 2010; Peterson, 2010). As a result of this, the question that keeps emerging is that “does government spending actually impact economic indicators in the region”? Unemployment remains one of the most challenging socio-economic problems of almost all the countries in Sub-Sahara Africa. With the consistent rise in unemployment situations in Sub-Sahara Africa, this study attempts to find the relationship between public spending and unemployment. To examine whether the increasing public expenditures reduce unemployment, increases unemployment or have nothing to do with unemployment, the study investigates the impact of government expenditure on unemployment in 34 Sub-Saharan African countries for the period 1990 to 2017. The study further disaggregates government expenditure into two categories; government investment expenditure and government consumption expenditure.

Utilizing the panel data estimation technique on annual series data, the pooled OLS, the fixed effect, and random effect models are employed to examine the relationship between government expenditure and unemployment in the selected SSA countries. Based on the fixed effect model selected with the aid of the Hausman test, both government consumption expenditure and government investment expenditure were found to have an effect on unemployment in the SSA countries. The findings of the study revealed that an increase in government consumption expenditures results in an increase in unemployment whereas a rise in government investment expenditures results in a reduction in unemployment, holding all other variables constant. In other words, government investment expenditure creates more employment in Sub-Sahara Africa. Foreign direct investment (FDI) was also found to increase employment in the SSA region. The study recommended that governments in the region focus more on investment expenditures which have a greater tendency of creating employment for the people than the consumption expenditures.

Available for download on Tuesday, October 06, 2020

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