Relative Efficiency of Government Spending and Its Determinants: Evidence from East Asian Countries

This paper aims not only to measure the relative efficiency of government spending in seven Asian countries but also to investigate the factors that influence government performance using annual data covering the period 1986–2007. Four hypotheses are tested: (i) the effect of private sector activities on the inefficiency of government spending in raising GDP, (ii) the government corruption hypothesis, (iii) the government size hypothesis, and (iv) the relationship between monetary expansion and the performance of government spending. The results of data envelopment analysis (DEA) show that Japan and Singapore have the highest efficiency scores in the sample. Extreme bounds analysis (EBA) in association with Tobit regression indicates that private sector activities exhibit a robust negative relationship with government inefficiency. Corruption is found to be a crucial factor affecting government performance, and M2 expansion and the inefficiency of government spending are robustly positively related. © 2011, Eurasia Business and Economics Society.