Unravelling the Public Spending-Inclusive Growth Nexus: A PCA-GMM Analysis in Developing Economies

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Abstract
This paper delves into the intricate tapestry woven between public spending and inclusive growth within developing economies, deploying a nuanced multidimensional framework. Moving beyond singular metrics, the author constructs a robust proxy for inclusive growth encompassing critical drivers like education attainment, healthcare access, income equality, and environmental sustainability. This composite measure, meticulously crafted through principal component analysis (PCA), provides a holistic lens for assessing the impact of public investment on economic inclusivity.Employing robust econometric techniques such as generalized method of moments (GMM), the analysis unveils the intricate dance between the allocation of public resources and the various dimensions of inclusive growth. Key findings illuminate the positive synergies between targeted investments in education, healthcare, and public goods, and their contributions to fostering inclusivity. Education investments empower individuals with knowledge and skills, unlocking avenues for upward mobility and poverty reduction. Similarly, robust healthcare systems contribute to improved health outcomes, enhancing workforce participation and productivity. Investing in public goods lays the foundation for a flourishing economy, ensuring environmental sustainability and creating an equitable playing field for all.On the other hand, the analysis also highlights potential obstacles on the path to inclusive growth. High unemployment rates emerge as a sever one of the Obstacles, casting a long shadow on economic opportunity and exacerbating pre-existing inequalities. This finding underscores the necessity of policies that not only stimulate economic growth but also actively promote job creation and labour market inclusion.

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