The effect of fiscal expenditure on the economic growth of developing countries in West Africa

Abstract

This study examines the effect of fiscal expenditure on economic growth in West African developing countries. This analysis used World Bank World Development Indicators data for 10 West African from 1999 to 2023. We used panel data methods such as pooled ordinary least squares (OLS) and generalized method of moments (GMM) to analyse the data and the panel corrected standard errors model to test robustness and confirm the study's findings. We chose GMM because it effectively addresses potential endogeneity issues, ensuring that the results are consistent and reliable. This analysis focuses on fiscal expenditures, specifically capital and current expenditures. Results demonstrate that capital expenditure exerts a positive and statistically significant effect on economic growth in West African developing countries, a finding consistent with Keynesian theory. In contrast, current expenditure reduces economic growth in pooled OLS and GMM models. Furthermore, labour and consumer price index positively and considerably affect economic growth, whereas trade openness negatively affects it. These findings emphasize the need for West African policymakers to strategically reallocate fiscal resources toward productive capital expenditures such as infrastructure and technology while cutting unproductive recurrent spending such as administrative overheads. This can directly reduce inefficient spending and boost productivity. These policies, along with trade efficiency and worker productivity changes, could boost regional economic growth.

Points for practitioners

Fiscal expenditure refers to government spending on goods and services, which can stimulate economic growth by increasing demand, investing in infrastructure and enhancing human capital. Our study highlights the essential role of fiscal expenditure in driving economic growth in West Africa. Policymakers should prioritize capital expenditures on infrastructure and technology to enhance productivity. Additionally, reducing unproductive current expenditures can help optimize fiscal resources, fostering sustainable economic growth in the region.

Keywords

Fiscal expenditure economic growth current expenditure capital expenditure generalized method of moments

Introduction

Fiscal expenditures, which relate to funds allocated to ministries, departments and agencies to finance public services and initiatives, are widely regarded as a lever for stimulating economic growth. While this idea is longstanding, its empirical validity remains deeply contested. For instance, studies across national and global contexts (Amusa and Oyinlola, 2019; Selvanathan et al., 2021; Shaddady, 2022) yield inconsistent conclusions, fuelling debates about whether government spending drives growth or stifles it through inefficiencies. This ambiguity is particularly pronounced in developing regions such as West Africa, where analyses suggest government spending in most emerging economies lacks statistically significant benefits for growth (Ndiaye, 2018). Even where correlations exist, they are often content-specific: Albassam (2022) finds a negative relationship between fiscal spending and growth in the Middle East and North Africa, challenging Keynesian theory and Wagner's law of increasing public expenditure, while Singh (2018) identifies bidirectional links between social spending and growth in India. Such contradictions underscore a critical gap: the role of expenditure composition – capital versus current spending – remains underexplored, especially in institutional settings such as West Africa, where inefficiencies and graft often distort outcomes (Nguyen and Bui, 2022; Yerima et al., 2022).

Theoretical frameworks further complicate this debate. Classical economics, emphasizing limited government intervention and market self-regulation (Palley, 2013), warns that excessive spending crowds out private investment. In contrast, Keynesian theory positions government as a growth catalyst through demand stimulation (Ampah and Kotosz, 2016; Sumandeep and Sharma, 2024), while Wagner's law cautions that public expenditure expands as a consequence of growth, not its driver (Dudzevičiūtė et al., 2018; Sek et al., 2022). Neoclassical theory emphasizes individual economic agent optimization, marginal analysis and microeconomic foundations in interpreting economic outcomes, a major departure from classical theory (Popescu and Diaconu, 2021), attempting to reconcile these views but struggling to explain why low-income economies which should grow faster due to catch-up potential often lag behind. Barro's endogenous growth model adds nuance, arguing that productive spending, for example, infrastructure and public services can spur growth, but only if balanced against tax-induced private-sector disincentives (Barro, 1990). Yet, these theories rarely disaggregate expenditure types or account for institutional realities in regions such as West Africa, where recurrent spending often dominates budgets.

This study addresses these gaps by examining fiscal expenditure composition across 10 West African states from 1999 to 2023. Unlike prior research relying on aggregated expenditures or single-country time-series analyses (Kimaro et al., 2017; Odhiambo, 2015), we employ a dynamic panel approach − pooled ordinary least squares (OLS) followed by generalized method of moments (GMM) − to disentangle the effects of capital and current spending while addressing endogeneity, heteroscedasticity and autocorrelation. Our findings reinforce Keynesian insights, showing capital expenditures (e.g., infrastructure and education) as significant growth drivers, whereas recurrent spending (e.g., subsidies and administrative costs) exhibits neutral or negative impacts. This divergence highlights the urgency of reallocating fiscal priorities in West Africa, where institutional weaknesses and informality amplify the costs of unproductive expenditure.

The reminder of this study is structured as follows: the second section reviews theoretical and empirical literature, the third section details methodology and data, the fourth section presents results and discussion, and the fifth section concludes with policy implications.

Literature review

Theoretical review

Every competent government administration deliberates on fiscal expenditures. The inquiry over who controls market dynamics has persisted for decades. Proponents of free markets contend that government intervention in fostering economic growth should be minimized, but critics assert that the government must play a central role in addressing market failures and other anomalies. The literature does not clarify which influences the other, and scholars’ findings are inconsistent. Several prominent hypotheses in this domain corroborate other findings, although others contest them.

The classical and neo-classical frameworks for government expenditure and economic expansion are mutually reinforcing. Traditional economic theory posits that the government should refrain from intervention and allow the market to develop (Albassam, 2022; Palley, 2013). The government needs to oversee economic growth with minimal intervention. The hypothesis posits that significant government involvement in stimulating economic growth may lead to crowding-out, which is detrimental to sustainable growth. The neo-classical theory posited that fiscal policy did not influence national output growth, although it expanded the framework and diverged from classical theory (Iheanacho, 2016). This theory highlights the significance of individual customers, marginal analysis, and microeconomic foundations in understanding rational economic results.

Wagner's Law of Increasing Public Expenditure emphasizes that government expenditure becomes increasingly vital as economic activity intensifies, providing the government with diverse funding sources due to growth-driven expansion (Selvanathan et al., 2021; Wu et al., 2010). Wagner posits that gross domestic product (GDP) growth is contingent upon government expenditure. As a nation's economy expands, its government may increase expenditures on development (Ebong et al., 2016).

Keynesianism refutes Wagner's hypothesis. Keynes posited that the magnitude of government influences economic growth. Consequently, the government must invest in infrastructure, social welfare, healthcare and education to stimulate economic growth (Palley, 2013). Government expenditure can enhance private consumption through its multiplier effect, hence stimulating economic growth (Okonkwo et al., 2023). Keynes termed this relationship government size-led growth, since government expenditure amplifies consumption expenditures, particularly during economic recessions when the free-market falters and the government is anticipated to intervene and rectify market anomalies (Ahuja and Pandit, 2020).

Empirical review

The relationship between fiscal expenditure and economic growth remains unresolved due to contradictory findings that challenge established economic theories. Ambiguous study outcomes encompass empirical data from both industrialized and developing nations with varying perspectives. Some studies indicate that government expenditure fosters economic growth (Aderobaki and Falope, 2024; Azizbek et al., 2025; Dudzevičiūtė et al., 2018; Ibrahim, 2019; Mennad and Meskini, 2025; Okonkwo et al., 2023; Raj, 2022; Sadeh et al., 2020; Wu et al., 2010; Yasin, 2011), whereas others caution that it may impede growth due to tax burdens and crowding-out effects (Amusa and Oyinlola, 2019; Diyoke et al., 2017; Umoh, 2025). This dichotomy persists across both developed and developing economies, complicating policy prescriptions.

Previous studies have examined the unidirectional, bidirectional and asymmetrical causal links between fiscal spending and GDP growth, evaluating both short-term and long-term effects. Lin (1994) examines the relationship between government spending and economic growth in developed and emerging countries, concluding that government spending boosts short-term economic growth but has a negative long-term impact. According to Osifo and Abusomwan (2023), government expenditure influences the Nigerian stock market and other economic sectors, with benefits in both the short and long term. Rambeli et al. (2021) examine the impact of government education investment on Malaysia's economic recovery following the 2008 global financial crisis, employing the augmented Cobb−Douglas model. The results indicate a clear long-term relationship between education spending and economic growth, with Malaysia's recovery characterized by balanced spending. Granger causation in their analysis reveals a one-way relationship between financial issues and economic growth. Recent empirical research has refuted the bidirectional relationship between government spending and economic growth (Ahuja and Pandit, 2020; Raj, 2022). Olaoye et al. (2020) find a disproportionate association between government spending and economic growth in Economic Community of West African States (ECOWAS) countries, implying that these variables are not inherently linked. Ahmad and Loganathan (2015) used a bootstrap rolling window methodology to examine Nigerian government expenditure and economic growth. The Granger causality test failed to predict any variable, however bootstrap rolling window estimation revealed both unidirectional and bidirectional causal links.

The debate continues as certain empirical research investigates this causal relationship from a cross-country viewpoint, as this conclusion is generally relevant across economies, in contrast to country-specific findings. The study's results remain contentious, and the cross-country aspect has not alleviated the uncertainty. Ahuja and Pandit (2020) analysed government expenditure and economic progress in 59 developing countries from 1990 to 2019. The research indicates that government expenditure significantly expedited economic growth. Yasin (2011) examines government expenditure and economic growth in sub-Saharan Africa. The findings indicate that general government expenditure, trade liberalization and private investment all demonstrate a positive and significant effect on economic growth, while foreign direct investment (FDI) and population growth interact negatively with economic growth. Günay and Aygun (2022) examined the relationship between government expenditure and economic growth in 30 Sub-Saharan African nations, utilizing Wagner's law and Keynesian theory. Both fixed and random-effects estimations yielded positive and statistically significant results.

Alternatively, other scholars examine the concept from a national perspective, yet numerous empirical frameworks yield country-specific insights and varied results. Bangura (2024) analyses Sierra Leonean economic development and governmental fiscal expenditure utilizing data from 2008 to 2022; the regression analysis indicates that government expenditure enhances economic growth. Ndanshau and Mdadila (2023) conducts an empirical evaluation of government expenditure and economic growth in Tanzania. The paired Granger causality test and autoregressive distributed lag co-integration tests indicated that government expenditure influences economic development, thereby rejecting the null hypothesis that government size has no effect.

To address this disparity, other scholars have investigated this connection at the state and local levels. Buthelezi (2023) assesses governmental expenditure and economic expansion across various South African provinces. Expenditures by state and municipal governments have not expanded GDP, hence defying Keynesian theory. Sumandeep and Sharma (2024) employ an extended moment's technique to analyse government expenditure, revenue and economic growth across 17 Indian states. Does a state panel guarantee development? The analysis revealed a significant correlation between fiscal concerns and economic development. The government is anticipated to raise expenditure to stimulate economic growth. Salmawati et al. (2023) conduct an analysis of government expenditure and its impact on economic development within the municipalities and regencies of South Sulawesi, the result showing that special and general allocation funds have minimal effect on the economic growth of South Sulawesi; conversely, profit-sharing funds significantly influence it.

Despite this breadth of research, West Africa remains underexplored, particularly regarding disaggregated analyses of capital versus recurrent spending within West Africa's institutional context (e.g., recurrent administrative costs and poorly targeted subsidies). The empirical literature reveals three critical gaps: (a) a lack of consensus on expenditure–growth causality in West Africa; (b) insufficient attention to expenditure composition (capital vs. recurrent); and (c) minimal exploration of institutional factors (e.g., corruption and governance) mediating this relationship. The disaggregation of fiscal expenditure into capital and current components can address these gaps through the utilization of a dynamic panel model and multi-country analysis of West African economies. This study circumvents biases from aggregated metrics and single-country analyses, offering a harmonized perspective on their growth impacts, and aims to reconcile theoretical contradictions and inform fiscally sustainable policies.

Data and methodology

Data

The study examined data from the World Bank's World Development Indicators database, which covers 10 Western African nations from 1999 to 2023. Since several factors’ data were unavailable after 1999, this period was chosen. The researchers examine how fiscal expenditures affect West African emerging market growth. This analysis used GDP as a proxy for economic growth and divided fiscal expenditures into current and capital expenditures consistent with other studies (Ndanshau and Mdadila, 2023; Ahuja and Pandit, 2020; Yasin, 2011).

Capital expenditure is crucial to national development. Gross capita formation − formerly gross domestic investment − is the main fiscal expenditure in this research. Gross domestic investment includes inventory movements and all spending on fixed asset expansion, while fixed assets include land improvements (such as fences, ditches and drains), plant, machinery and equipment purchases, and infrastructure construction such as roads, trains, schools, offices, hospitals, residential residences, and commercial and industrial structures (Iheanacho, 2017; Jibir, 2023). The report also examines current spending, formerly broad government consumption. All government hiring and purchasing spending falls into this category. It includes most national security and defence costs but excludes military spending that supports government capital creation (Amusa and Oyinlola, 2019; Landau, 1983; Ndanshau and Mdadila, 2023; Sidek and Asutay, 2021). The value of products and services imported and exported as a percentage of GDP affects economic growth. This study used trade as a control variable. The research continues with the consumer price index (CPI), which evaluates changes in the average customer's costs for products and services over a year. A nation's economic growth depends on workforce availability. This analysis incorporates labour force as a variable. The labour force participation rate is the percentage of 15–64-year-olds who work in the economy and produce goods and services. This dataset may exhibit limitations, including potential biases in data collection across the studied countries. However, these biases may not significantly impact the findings, as all countries are from West Africa and the World Bank employs standardized measurements of variables applicable to all nations. Furthermore, the study utilizes the most recent available data from all selected countries. Table 1 lists the investigated nations.

Table 1.

The West African countries selected for the study.

Benin	Mali
Burkina Faso	Niger
Côte d’Ivoire	Senegal
Gambia, The	Sierra Leone
Ghana	Togo

Source: Authors’ selection.

Econometric model

The study used panel data techniques, including the GMM and pooled OLS, in 10 developing countries in West Africa from 1999 to 2023. The following estimating equation can be used to describe the relationship between fiscal expenditure and economic growth:

{GDP}_{i t} = β_{0} + β_{1} {GCF}_{i t} + β_{2} {GGFC}_{i t} + β_{3} {TRA}_{i t} + β_{4} {CPI}_{i t} + β_{5} {LAB}_{i t} + ε_{i t}

(1)

Equation (1)'s dependent variable is GDP, which indicates a country's economic growth in country i at time t. The factor variable is a nation's gross capital formation (GCF) in country I at time t. The model also includes four more independent variables: GGFC, TRA, CPI, and LAB, which represent trade, labour force, consumer price index, and general government final consumption expenditure in country i at time t. The error term is $ε_{i t}$ and the constant term is $β_{0}$ .

The study employs both pooled OLS and GMM due to their complementary functions in addressing different aspects of the data. The researchers initially utilized the pooled OLS approach to estimate Equation (1). Pooled OLS serves as a baseline model to preliminarily assess correlations, acknowledging its limitations in unobserved heterogeneity. GMM is prioritized as the main model. However, the results may be biased due to the presence of other unobserved factors that could be linked to the research variables. Pooled OLS does not account for time-invariant unobserved factors that may affect independent and dependent variables. This study solely used pooled OLS to examine the connection between the dependent variable, and outcome variable due to estimating restrictions. Because economic growth models are dynamic, this study used a dynamic panel data model, and GMM was employed due to its efficacy in resolving endogeneity and dynamic interrelationships among variables, which fixed effects and random effects cannot manage. Endogeneity from lngcf, lntrade, and lnggfce may be caused by unobserved GDP-affecting factors. Therefore, this research used a dynamic panel data model to address endogeneity and the GMM to address heteroscedasticity, autocorrelation and other model difficulties. This study used GMM estimation, following Arellano and Bover (1995) and Blundell and Bond (1998). Then, Equation (1) is modified:

{GDP}_{i t} = β_{0} + β_{1} {GDP}_{i t - 1} + β_{2} {GCF}_{i t} + β_{3} {GGFC}_{i t} + β_{4} {TRA}_{i t} + β_{5} {CPI}_{i t} + β_{6} {LAB}_{i t} + ε_{i t}

(2)

Findings and discussions

Table 2 presents how the researchers begin the analysis by presenting a summary statistic for each variable included in the examination. Lngdpc is the log of gross domestic product, Lngcf is gross capital formation, Lnggfce is the log of general government final consumption expenditure, Lntrade is the log of trade, Lncpi is the log of consumer price index and Lnlap1564 is the log of labour force.

Table 2.

Summary statistics.

Variable	Observation	Mean	Standard deviation	Minimum	Maximum
Lngdpc	250	6.605	0.603	4.932	7.912
Lngcf	250	2.938	0.474	−1.228	3.859
Lnggfce	232	2.482	0.277	1.769	3.09
Lntrade	250	3.994	0.258	3.413	4.754
Lncpi	241	4.636	0.421	2.617	6.413
Lnlab1564	240	4.18	0.129	3.848	4.39

Table 2 demonstrates that the mean value of all the data included in the analysis is positive. Furthermore, the fact that the mean values exceed the standard deviation values indicates that our data are normal.

Table 3 presents the correlation between the dependent and independent variables. It shows that GCF, trade and CPI have a positive correlation with economic growth while consumption expenditure and labour force have a negative correlation with economic growth.

Table 3.

Correlation analysis.

Variables	(1)	(2)	(3)	(4)	(5)	(6)
(1) Lngdpc	1.000
(2) Lngcf	0.265	1.000
(3) Lnggfce	−0.290	0.180	1.000
(4) Lntrade	0.289	0.182	−0.212	1.000
(5) Lncpi	0.486	0.101	−0.198	0.009	1.000
(6) Lnlab1564	−0.344	−0.098	0.205	−0.264	−0.201	1.000

To determine multicollinearity, the study used the variance inflation factor (VIF) to assess collinearity between a single predictor and several predictors. The VIF measure indicates component multicollinearity. A VIF below 5 indicates no multicollinearity. Following this basic notion, the VIF result in Table 4 indicates no collinearity between variables in this study.

Table 4.

Variance inflation factor (VIF).

	VIF	1/VIF
Lnggfce	1.188	0.842
Lntrade	1.166	0.858
Lnlab1564	1.145	0.874
Lngcf	1.122	0.891
Lncpi	1.098	0.911
Mean	1.144

Figure 1 illustrates the trends in GDP per capita for the selected West African countries from 1999 to 2023, providing essential insights into the region's economic performance. Countries such as Ghana and Senegal exhibit a consistently ascending trajectory in their GDP per capita, signifying significant economic expansion during the last 20 years. This may suggest that robust economic policies, foreign investment and trade links have enhanced these nations’ economies. Mali and Niger have more erratic GDP per capita patterns, characterized by stagnation and fluctuations. This volatility may stem from political instability, security concerns and agriculture susceptible to climate change. These economic challenges necessitate targeted policies to stabilize and enhance growth in these nations. Burkina Faso and Côte d’Ivoire are seeing growth, though at a slower pace than Ghana and Senegal. The sustained GDP per capita rise of these nations indicates that, although advancements are occurring, further enhancement is necessary. Government investments in infrastructure, education and healthcare could enhance economic performance. Subdued growth rates in Sierra Leone and Togo indicate their persistent difficulties in attaining sustainable economic development. The low GDP per capita of Sierra Leone may be attributed to civil conflicts, economic mismanagement and inadequate infrastructure. Structural inefficiencies and restricted global market access may impede Togo's advancement. The analysis of these changes underscores the diverse economies of West Africa. Some nations are enhancing their GDP per capita, while others face significant challenges necessitating extensive policy interventions. The results of this investigation will inform regional economic plans for growth and stability.

Table 5 lists the correlation between the dependent and the independent variables. Furthermore, it shows that GCF, trade and CPI have a positive correlation with economic growth while consumption expenditure and labour force have a negative correlation with economic growth.

Table 5.

Results of the pooled ordinary least squares (dependent variable economic growth).

Variables	Lngdpc
Lngcf	0.350***
	(0.117)
Lnggfce	−0.368***
	(0.115)
Lntrade	0.360***
	(0.134)
Lncpi	0.548***
	(0.101)
Lnlab1564	−0.671***
	(0.202)
Constant	5.289***
	(1.153)
Observations	216
R²	0.405

Note: Robust standard errors in parentheses *** p < 0.01, ** p < 0.05, * p < 0.1.

Source: Authors’ computation using Statistical Analysis Software.

Table 5 presents the association between fiscal expenditure and economic growth using pooled OLS research. The pooled OLS also demonstrates a statistically significant positive association with GCF and economic growth, which is consistent with the correlation analysis. Trade and the CPI consistently demonstrate a positive relationship with economic growth, whereas government consumption expenditure and labour force components indicate a negative correlation. Following the identification of this association, the researchers employed GMM to present the study's findings.

Government capital expenditure, or GCF, statistically enhances economic growth, as presented in Table 6. A 10% increase in government expenditure enhances economic growth by 0.271. Investments in physical assets can enhance productivity, trade, manufacturing capacity, technological innovation and employment generation. Consequently, employed individuals contribute to tax revenues, thereby enhancing the economy. The positive and significant outcome of capital spending aligns with endogenous growth theory (Romer, 1990), highlighting the role of physical capital accumulation as a catalyst for productivity and innovation. Like the model, Nigeria's National Integrated Infrastructure Master Plan (2020–2043) has enhanced production capacity and mitigated logistical constraints. However, the marginal significance (10% level) suggests context-specific efficacy, as seen in Ghana's mixed outcomes from capital projects due to corruption and maintenance gaps (Damoah et al., 2018). The observation is also congruent with that of Iheanacho (2017) and Jibir et al. (2024).

Table 6.

Results of the generalized method of moments (dependent variable economic growth).

	(1)
Variables	Lngdpc

L.Lngdpc	0.823***
	(0.116)
Lngcf	0.271*
	(0.152)
Lnggfce	−1.620*
	(0.881)
Lntrade	−0.497
	(0.420)
Lncpi	0.00805
	(0.213)
Lnlab1564	8.722*
	(5.249)
Constant	−30.09
	(18.67)
Observations	198
Number of identifications	10

Note: Standard errors in parentheses *** p < 0.01, ** p < 0.05, * p < 0.

Source: Authors’ computation using Statistical Analysis Software.

General government final consumption expenditures diminish economic growth by 1.620 when increased by 10%. This adverse consequence substantiates critiques of neoclassical fiscal policy (Barro, 1990), wherein unproductive expenditure obstructs private investment. The fuel subsidy system in Nigeria diverted funds from essential infrastructure, worsening debt-to-GDP ratios and hindering private sector development (Iheanacho, 2016). This contradicts Keynesian models yet corroborates Landau's (1983) assertion that consumption-driven budgets in developing nations prioritize immediate political benefits above sustainable growth. Consumption deters private investment, elevating government borrowing and enhancing competition in financial markets. Consequently, consumer expenditure may impede economic growth. This may elevate borrowing or financing expenses for enterprises undertaking their own investments, so diminishing investment and economic growth. Growth in consumer expenditure may prompt the government to increase taxes, so reducing disposable income and diminishing incentives for firms to invest and expand. Tax increases may diminish consumer expenditure, hence reducing economic activity. This corresponds with Sidek and Asutay (2021).

Trade diminishes economic growth by 0.497% for each 10% escalation in trade. Trade is expected to enhance economic growth; yet, it cannot account for the advancement of West African economies. Illicit trade in West Africa generates information asymmetry and informal transactions, exacerbating macroeconomic challenges. The Prebisch−Singer hypothesis posits that trading adversely impacts West Africa's trade dynamics due to inherent structural deficiencies, particularly reliance on primary exports (Loizides and Vamvoukas, 2005). This opposes neoliberal trade ideology and underscores regional industrial initiatives such as ECOWAS's 2025 Industrialization Strategy. Nigeria's oil exports, constituting 90% of total exports, render it vulnerable to volatile global prices, while restricted value-added manufacturing curtails trade benefits (Ozigbu, 2023). Also, 40% of regional trade involves the smuggling of rice between Nigeria and Benin, thereby circumventing customs and distorting trade statistics (Omotosho, 2021). The African Continental Free Trade Area (AfCFTA) fosters intra-African industrial development; yet, West Africa exhibits sluggish implementation.

The CPI stands at 0.008, indicating a positive albeit statistically insignificant impact on economic development. Furthermore, the CPI is frequently utilized by a nation's central bank to develop monetary policy and establish inflation objectives. Moderate CPI inflation can enhance economic growth by encouraging investment and consumption. Reducing the real value of a nation's debt can stimulate economic activity. The negligible positive CPI suggests inflation-growth threshold effects (Khan and Senhadji, 2001). For example, Côte d’Ivoire's judicious monetary policy sustained single-digit inflation (2.5% in 2023) and bolstered investor confidence (Lampe, 2024), while Ghana's 54% inflation in 2022 diminished consumer demand, and Nigeria's moderate inflation (22%) first stimulated small and medium-sized enterprises’ borrowing but subsequently destabilized expectations. New Keynesian models suggest that low inflation signifies stability, whereas high inflation disrupts planning.

A 10% increase in labour supply enhances economic growth by 8.722%. Lewis’ dual-sector approach, which allocates surplus labour to productive sectors, aligns with labour's significant positive impact. For example, The Youth Employment Action Plan (2021–2040) in Nigeria highlights that agribusiness and technology training can facilitate workforce mobilization, potentially attracting FDI and diversifying economies. Conteh and Bangura (2024) assert that employee performance is positively correlated with efficient training and development. Therefore, a tailored training needs assessment can enhance labour productivity; a lack of such assessment may lead to an unproductive labour force. The 10% significance level indicates an excess of unskilled labour, as seen by Ghana's underemployment issue despite the growth of the labour force (Ajonbadi and Mordi, 2025). The availability of labour enhances production. Economic expansion transpires when employment increases, hence augmenting output. The expansion of the labour force can entice both international and domestic investment, as enterprises pursue a larger and more efficient workforce. Investing in this initiative could enhance infrastructure, human capital, technology and economic development.

Robustness checks

We utilize panel-corrected standard errors (PCSE) as a robust modelling technique to ensure reliable estimation. This estimator is regarded as an effective technique for estimating panel data, as it resolves econometric issues frequently faced in alternative models such as OLS and the fixed-effects approach. These problems encompass multicollinearity, heteroscedasticity and autocorrelation. Thus, in accordance with Beck and Katz (1995), Parks (1967), Kamara, (2024) and also Li et al. (2025), we employed PCSE to address spherical errors and cross-sectional dependency. The PCSE estimator is deemed more effective than the feasible generalized least squares (FGLS) method when the cross-sectional dimension (N) is at least double the temporal dimension (T) (Reed and Ye, 2011; Romano and Wolf, 2017). Finally, we employed the FGLS estimator to evaluate the robustness of the findings derived from the PCSE method.

Using PCSE to assess the effects of government spending on economic growth allowed us to draw valid conclusions from our findings. The PCSE estimation in column 2 of Table 7 provides a thorough overview of our findings. To validate the integrity of our findings, we juxtaposed these results with FGLS estimations, as described in column 3 of Table 7. The alignment between the PCSE and FGLS outputs enhances the credibility of our findings. The PCSE data in Table 7 clearly indicate that GCF, a measure of fiscal expenditure, has a substantial positive association with economic growth. This implies that economic growth can be achieved by wise government resource allocation to infrastructure, technology, human capital development and other concrete expenditures. However, if the government of a country allocates a greater portion of its resources towards consumption, as presented in Table 7, it will result in a decrease in economic growth.

Table 7.

Panel-corrected standard errors (PCSE) results (dependent Variable economic growth).

	PCSE	Feasible generalized least squares
Variables	Lngdpc	lngdpc
Lngcf	0.350***	0.350***
	(0.130)	(0.0918)
Lnggfce	−0.368***	−0.368***
	(0.0891)	(0.116)
Lntrade	0.360***	0.360***
	(0.0788)	(0.123)
Lncpi	0.548***	0.548***
	(0.0544)	(0.0764)
lnlab1564	−0.671***	−0.671***
	(0.113)	(0.232)
Constant	5.289***	5.289***
	(0.866)	(1.328)

Observations	216	216
R²	0.405
Number of identifications	10	10

Note: Standard errors in parentheses *** p < 0.01, ** p < 0.05, * p < 0.1.

Source: Authors’ computation using Statistical Analysis Software.

Conclusions

This study employs panel data from 1999 to 2023 to examine the impact of fiscal expenditure on economic growth in 10 developing countries in West Africa. The data were examined utilizing GMM and pooled OLS. Pooled OLS exhibited constraints; hence, GMM was employed to achieve more precise estimations. The combined pooled OLS and GMM results, derived from robust methodologies and an extensive dataset, indicate that capital expenditure enhances economic growth in West African nations, opposing the findings of Ndiaye (2018) and Olaoye et al. (2020). This challenge arises from methodological discrepancies. In contrast to the present study, Ndiaye and Olaoye employed diverse statistical methodologies, models and variable selections to analyse the relationship between capital expenditure and economic growth. Methodological variations influence research outcomes. Their conclusions may diverge due to their utilization of distinct time frames and the exclusion of certain states. Alterations in governmental policy, international economic circumstances and investment trends may influence capital expenditure and economic expansion, elucidating the diverse results. Also, their studies only concentrate mostly on current expenditures. Theoretical frameworks ultimately influence the interpretation of outcomes. The current study findings corroborate Keynes's theory and Barro's projections. The analysis includes descriptive statistics, correlation analysis and multiple regression techniques (pooled OLS, GMM and PCSE) to examine regional economic growth with methodological precision. The study differentiates between capital and current expenditures to enhance comprehension of their impact on economic growth of West Africa and other emerging economies.

Secondly, current expenditure adversely impacts economic growth in both the pooled OLS and GMM analyses. The labour force and CPI enhance economic growth, but trade impedes it. According to the research findings, these countries are anticipated to increase capital expenditure and labour force resources to expedite overall government expenditures. Unproductive expenditure in many of these nations obstructs productive investment and economic progress, jeopardizing more advantageous expenditures. Examples of wasteful expenditure include non-essential government programmes, rising administrative expenditures and subsidies yielding low returns on investment. Unproductive expenditure encompasses initiatives lacking definitive economic benefits or essential infrastructure requirements.

In this context, these nations must enhance their expenditure efficiency with enhance public accountability (Mattei et al., 2013). Priority must be given to economic growth and development expenditures. For example, the infrastructure deficiencies, exemplified by the road density of 34 km per 100 km² in West Africa in contrast to East Africa's 63 km per 100 km², impede intra-regional commerce (Byiers and Dièye, 2022). Capital initiatives such as the building of Ghana's Tema Port enhance trade policies like the AfCFTA and improve worker competencies through technical training (Diallo, 2023).

Crowding-In FDI

The Dakar−Diamniadio Toll Highway in Senegal attracted $2.1 billion for logistics hubs (Samoshkina, 2018). Infrastructure deficiencies cannot be rectified through trade and labour reforms alone. West African countries ought to promote high-multiplier capital initiatives, such as Niger's rural electrification, and public−private partnerships, exemplified by Côte d’Ivoire's Azito Power Plant, to enhance economic growth. In addition, they should eradicate regressive subsidies, such as Nigeria's fuel subsidies, and institute medium-term budget frameworks as seen in Ghana. Complementary reforms such as ECOWAS’ Trade Liberalization Scheme and the alignment of labour policy with industrial sectors (e.g., Ghana's 1D1F enterprises along transport corridors) will diminish trade obstacles and enhance employment growth (Safaeimanesh and Jenkins, 2020). These tactics enhance financial efficiency, attract investment and rectify structural difficulties for sustainable growth.

This proposed allocation will mitigate superfluous expenditure and enhance the economy. Executing these policy suggestions may prove challenging. For instance, Ghana (debt-to-GDP: 90%) and Sierra Leone (78%) are subjected to International Monetary Fund austerity measures that limit capital expenditure (Raga, 2023). West African leaders prioritize ostentatious projects, such as Nigeria's stadium diplomacy, above sustainable investments such as rural electrification, so undermining governance continuity. West African nations grapple with corruption; for example, Liberia's East−West Highway Project was halted due to ineptitude (Obicci, 2025). Regional fragmentation hinders policy execution. Incongruent national priorities delay the Abidjan−Lagos Corridor Highway project. West African governments should prioritize gross fixed capital formation, expansionary fiscal policy and capital accumulation for accelerated development.

Footnotes

Declaration of conflicting interests

The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The authors received no financial support for the research, authorship, and/or publication of this article.

ORCID iDs

Foday Sulaiman Bangura

Abdul Karim Kamara

Guo Lei is a professor and doctoral supervisor in the School of Government, University of International Business and Economics. Their main research field is digital governance and regional economy.

Foday Sulaiman Bangura is a lecturer at the University of Makeni. He holds a Bachelor's degree in Public Administration and Management from the University of Makeni and a Master's degree in Public Administration from the University of International Business and Economics. Bangura has experience in administrative leadership and research, focusing on fiscal policy and economic growth in developing countries.

Abdul Karim Kamara holds a PhD in Economics from the University of International Business and Economics in Beijing, China, and he has published extensively in the field of finance and Economics. Currently he is attached at Huazhong University of Science and Technology, where he is contributing to advancing research and education in economics and finance.

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