A Comparative Study of the Effect of Government Size on Economic Growth between OPEC & OECD Countries; a Threshold Panel Approach Based on Standardized and None Standardized Threshold Variable

Economic growth is one of the most important goals of all societies all over the world. Among the determinants of economic growth rate, the government size has always been of particular interest. Natural resources let governments spend more easily in comparison to tax-based governments. Using panel data models brings talk about regression results more confidently due to more observations availability. In this paper, we apply Ram(1986) model to comparatively examine the effects of different types of government expenditure on economic growth through a panel threshold approach in OECD countries and those of OPEC. To control for cross country differences we use standardized government size as the threshold variable. Since using standardized threshold variable is done for the first time in the world and the implications of such an approach are not discussed in the literature, we used both methods(standardizing or non-standardizing the threshold variable). The data are from valid international organizations such as IMF &Worldbank. The results indicate that the Armey curve exists neither in OECD countries nor in OPEC countries except for current expenditures in OECD countries for which a threshold value of 19 percent is obtained. As a conclusion for this work, government size in OPEC countries can be far larger than it is now. About OECD, the results show that except for current expenditure, government size is far larger than growth rate.