Growth and Convergence: How could Governments Make Valid Expenditures to PromoteInnovation?

Abstract

Economic growth had seen slowing growth rate in some developing economies mainly due to the limitations of convergence and catching-up effect, despite this theory having once provided the theoretical basis for the rapid growth of developing economies at their early stage. Due to the impacts of the global pandemic, this cease in growth is likely to occur more rapidly. Based on the endogenous theory of growth, this study conducted a deeper analysis from the aspect of government and its intervention, by dividing government expenditure into three categories that effect the environment and incentives for innovation to occur within an economy without taking direct investment into account. The variables via each category could be matched with an economic indicator that is either directly reflecting upon the government’s expenditure or is largely dependent on the government’s intervention. After conducting statistical data analysis on the raw data collected from the National Bureau of Statistics and the World Bank, the linear correlation constructed within the model could be tested with the significance coefficient of each variable. The output of this study put forward the endogenous theory of growth. Despite not being able to generate accurate anticipations, the general pattern of growth could be predicted with suggestions for the government to adjust their expenditure policies and plans in accordance with the economy’s status and the growth of that economy can be oriented in theory.