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Theoretical and Applied Economics
No. 2 / 2019 (619), Summer

Co-integration with regime shift between government expenditure and poverty reduction in Algeria

Hicham AYAD
University center of Maghnia, Tlmecen, Algeria

Abstract. This study investigates the direct impact of government expenditure on poverty reduction in Algeria from 1970 to 2017 so as to be able to find out if the government expenditure is pro-poor people or not, the Gregory-Hansen (1996) co-integration technique allowing for the presence of potential structural breaks in data is applied to examine the long run co-movement between poverty rate and government expenditure, the results shows that there is a structural break in poverty rates in 1989 using the Zivot-Andrews unit root test and in 1972 and 1986 using CMR and LM unit root tests, and there is a co-integration relationship with one break in 1986 among the variables, the results also suggests that there is no evidence of any affect from government expenditure on poverty rate over the period of study both in short run and long run term which means that the government expenditure in Algeria is not pro-poor people and the expenditure efforts presented by the government still very limited to impulse and reduce the poverty rates and to improve the standard living for the poor people.

Keywords: poverty, government expenditure, structural breaks, co-integration.

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