Abstract. Government spending does not have a monotonic relationship with economic growth. The growth impacts of government spending differ owning to several factors. This paper has examined the relationship empirically. The empirical analysis has been carried out separately for developed and developing economies. The analysis has been performed with panel datasets of 36 developed and 88 developing countries over the period of 2000-2018. Fixed Effects (FE) model and Panel Error Correction Model (PECM) were used for estimation. The long-run cointegrating relationship was estimated using a PDOLS estimator. The FE estimation showed negative impacts of public expenditure on growth in developed economies whereas no causal relationship for the case of less developed economies. In the dynamic estimation analysis, it was found that public health expenditure negatively affected growth in developed economies and positively in the less developed economies, in the long run. In the short-run, no causal relationships could be established for both the cases.

Keywords: government health spending, economic growth, fixed effects estimation, panel error correction model, developed and less developed economies.