between the shares of productive expenditure in the two groups increases significantly as time goes on, despite the fact that they were relatively close during the mid to late 1970s.

Tables 1 and 2 also compare the share of “core” public spending, which is introduced in this paper as an alternative definition. This classification may be more appropriate for some developing countries, as it includes public spending in energy and fuel which is often closely interlinked with other critical spending categories and can affect significantly their overall impact on growth.<sup>16</sup> The share of “core” spending in total expenditures is somehow different in the two groups, but only 4 percentage points higher, on average, in the fast-growing set. In the tables, it can be also seen that the share of “core” items is close across some countries in each group with the exception of Uruguay in the comparison group and Korea in the fast-growing group which have relatively lower shares, and Botswana in the fast-growing group and Costa Rica in the comparison group which have higher shares.

The second panel of Figure 4 aggregates the share of “core” spending throughout the entire time period in the two sets of countries. In the figure, it can be observed that the share of “core” spending is significantly declining in the comparison group after 1985, while it is relatively stable in the fast-growing group. As a result, the gap between the two groups is getting larger overtime.

Another major difference that can help us explain, a priori, the gap between growth performances of the two groups of countries may be in the shares of public gross fixed capital formation as percent of GDP. Indeed, Figure 5 clearly shows that public investment is much larger in the fast-growing countries. The share of public investment in GDP is around 10 percent for the first group of countries, while it is only 5 percent for the second group. Given the significance of public investment, especially its infrastructure component, in economic growth, this difference between the two groups is striking.

Possible differences between the two groups may also be associated with government effectiveness and quality of governance. Figure 6 presents the percentiles for government effectiveness.<sup>17</sup> The figure shows that, in terms of government effectiveness, all countries in the first group (with the exception of Indonesia) rank more favorably in comparison with the second group. When we investigate their position (last seven countries in Figure 6), we can see that the percentiles are much lower at around 60, with the exception of Chile, which has a government effectiveness index above 80.<sup>18</sup> In the whole sample of

> 16 The other difference between this definition and the previous one is that it excludes defense spending, a sector whose _a priori_ impact on the private sector production function is less well known by economists. “Core” spending includes general public services expenditure, educational expenditure, health expenditure, housing expenditure, transportation and communication expenditure, and expenditure on fuel and energy.

> 17 According to the Kraay, Kauffman and Mastruzzi (KKM) indicators, government effectiveness measures the quality of public services, the quality of the civil service, the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies.

> 18 KKM indicators using a (0-100) percentile rank, World Bank. It should be noted that 1996 is the earliest year in the database.

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