CONCLUSIONS
In this paper, we have examined the effects of social expenditures on economic growth in
Australia and New Zealand by means of cointegration, error correction methods, and
Granger causality test using annual data for a period of 33 years (1980-2012). Our study
shows that long-run economic growth in Australia is largely explained by education,
health and social expenditures; in case of New Zealand, on the other hand, economic
growth is largely explained by health and social expenditures. It is also evident that there
is a bi-directional relationship between social expenditures and economic growth,
especially when the government allocates excessive budget for social welfare creating
deficit. The estimated coefficients of the ECM indicate a moderate speed of adjustment
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to equilibrium. The sign of error correction term is negative and significant, confirming
that there exists a long-run equilibrium relationship among the variables.
Our findings suggest that in the long-run social expenditures impact economic
growth positively. In the short-run also there is a two-way relationship between social
expenditures and economic growth. These results tend to suggest that developing
countries should not neglect social welfare since there is a positive link between social
welfare expenditures and economic growth, and also social safety net is almost nonexistent
in those countries. Fast growing ASEAN nations, especially Singapore and
Malaysia that usually rely on an extremely modest budget for social welfare, but at the
same time are keen to achieve the status of “developed nations” by 2020, should adopt a
more “generous” policy stance towards social welfare.