The effect of public social expenditure on imports

This paper studies the effect of social expenditure on imports. In doing so, it uses cross-country panels of the world economy to estimate an augmented balance-of-payments-constrained growth model that takes into account social spending. The results show that social expenditure reduces imports and offsets the negative effect it could have on the balance of trade through its effect on exports. We also find that for OECD countries, education spending is relevant to imports but not to exports, for which the most relevant component is spending on social protection (old-age and unemployment benefits). This result is particularly relevant for development policy in countries with low social expenditure.