The Role of Government Activities in Explaining the Growth Failure of the Oil Exporting Countries

Abstract In standard growth models such as Barro’s (1990), government size is related to economic growth within an inverted U-curve framework. However, the government’s involvement in the economy – in developing countries in general and in oil exporting countries in specific – is not restricted to budgetary activities. Ownership of enterprises and different forms of interventions in different markets comprise other forms of government activities in these economies. In assessing the impacts of government activities on economic growth one needs to take into account all the roles played by the government. In this paper, we examine the significance of government activities on the economic growth of oil exporting countries, through channels of government expenditure, ownership of enterprises and intervention in the economy. The results indicate that government intervention not only has a significant negative direct impact on economic growth,– which is much larger than a similar case for the rest of the world – but it also weakens the positive effects of the provision of public goods by the government.