Macroeconomic policy, spillover effects and economic development in the G20
Opeyemi AromolaranPurpose
This study aims to examine the performance of living standards in the G20 using the gross domestic product (GDP) per capita metric, analysing several macroeconomic variables that are crucial to driving economic development.
Design/methodology/approach
The spatial regression techniques were used for the empirical analysis on panel data over the period 2002–2024, while gravity bilateral average trade flow data were derived for the construction of the spatial weight matrix over the period 2002–2021. However, for the unbalanced panel and using the same weight matrix, the Stata command produces the same estimates for periods terminating in 2020, 2021, 2022, 2023 and 2024.
Findings
The empirical findings from the spatial Durbin model show that labour force and gross capital formation directly influence domestic GDP per capita and exhibit positive spillovers to neighbours and the entire G20. However, the labour force does not have a significant main effect. Moreover, gross national expenditure shows only significant positive spillovers to neighbouring countries and the entire G20. The negative significance of manufacturing value added without trade persists with spatial interaction showing a significant negative impact on domestic GDP per capita. With and without interaction, government effectiveness positively influences GDP per capita but negatively spills over to the combined GDP per capita of the neighbours. Also, the effect of nominal effective exchange rates on domestic GDP per capita is positive in both the non-trade and average bilateral trade cases. Government final consumption expenditure positively affects GDP per capita without interaction, while it positively affects domestic GDP per capita and the entire G20 through spatial interaction. Inflation rates positively influence GDP per capita but do not show spillover effects. Without interaction, current health expenditure has a significant negative effect on GDP per capita. The negative effect of health expenditure persists through spatial interaction on both domestic and regional GDP per capita.
Research limitations/implications
One limitation of the study is that it uses an unbalanced panel for the empirical investigation. Moreover, bilateral trade flow data contain missing entries. However, during the construction of the spatial weight matrix, the use of collapsed average flows ensures that every pair of countries has an average trade flow.
Practical implications
The study recommends that the governments of the respective G20 countries provide an enabling macroeconomic environment characterised by effective institutions that improve manufacturing value added, drive gross capital formation and stabilise nominal effective exchange rates.
Originality/value
This study contributes to the discussion of economic growth by considering 19 countries in the G20, based on spatial interaction anchored in a weight matrix of bilateral trade flows.