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Purpose – The purpose of this paper is to examine the impact of the size of government and public debt on real economic growth, for a panel of 175 countries around the world. Design/methodology/approach – The paper utilizes the fixed-effects and random-effects techniques to estimate the panel regressions. Findings – The results indicate that both the size of government and the extent of government indebtedness have negative effects on economic growth. Practical implications – The findings suggest that the authorities ought to take the necessary steps to curtail excessive government spending and public debts, in order to promote economic growth. Originality/value – The contribution of the paper is its application of the fixed- and random-effects techniques in modeling the relation of real economic growth to the size of government and public debt, for a panel of 175 countries around the world. [ABSTRACT FROM AUTHOR]

Purpose – In the literature on the effects of economic globalization, the compensation hypothesis suggests that there is a positive link between government size and external risk as governments perform a risk mitigating role to insure against productivity shocks through transfers. In contrast, the conventional wisdom hypothesis states that more openness will lower tax rates and lead to smaller government due to increased international factor mobility which undermines the ability of governments to tax. The purpose of this paper is to test the literature and present the authors' conclusions. Design/methodology/approach – Using time series data for the USA, Canada, Japan and Australia over the period 1960-2008, the authors test the asymmetric relationship between government size and terms-of-trade volatility by applying multivariate hidden cointegration analysis. Findings – The findings show that high terms of trade volatility are positively related to government spending in the all sample countries. The effect is stronger in the case of positive movements than negative ones. Practical implications – The policy implication is that the size of the public sector might play a risk-reducing role in economies with significant amounts of external risk. In particular, public expenditure is considered to be an important fiscal policy instrument when terms of trade volatility are high. Originality/value – The paper describes the first study of its kind. [ABSTRACT FROM AUTHOR]

Purpose – The purpose of this paper is to identify major macroeconomic factors that enhance foreign direct investment (FDI) for Pakistan through the co-integration and error correction model over a 28-year time period, i.e. between 1980 and 2008. Design/methodology/approach – The study employed the Johansen co-integration technique to estimate the long-run relationship between the variables, while an error correction model was used to determine the short-run dynamics of the system. Findings – Finding suggests that FDI has had a significant positive impact on Pakistan's economic growth in the long run. For example, trade liberalization and their interactive terms have a positive effect in the short run, while a negative effect is observed in the long run upon economic growth of Pakistan. The results indicate that due to a low quality of human capital in Pakistan; the direct effect of FDI on economic growth becomes negative. Research limitations/implications – The study was limited to a few variables, including human capital, trade openness, government size, population and consumer price index, in order to manage robust data analysis. Practical implications – The authors find that for FDI to be a significant contributor to economic growth in Pakistan, government must focus upon improving physical infrastructure, and quality of human resources. Originality/value – The study confirms that Pakistan did not enjoy substantial growth benefits from FDI because human capital, trade openness, government size and interactive terms of FDI and per capita income have a negative impact on economic growth. These findings have important policy implications. [ABSTRACT FROM AUTHOR]