Public Spending and Economic Growth: Empirical Investigation in the Context of Pakistan

Abstract

Purpose of the study is to empirically examine the hypothesis; either public spending stimulates economic growth in the context of emerging economy like Pakistan.  Government expenditures studied in this paper includes capital expenditure, education expenditure and interest payments. All these explanatory variables were regressed on economic growth; the proxy used for economic growth is GDP growth. Thirty years data is used in this study from 1980 to 2010; it was passed through unit root tests to check stationary of the data which was found stationary at level. The results found consistent with some previous studied, there were found negative link between the spending on the education sector and economic growth. In the current study no significant link is found between development expenditure and economic growth. However the findings of the study reveals that interest rate negatively affect economic growth.

Keywords: Keynesian Hypothesis, Capital expenditure, interest payments, economic growth