The Dynamic Effect of Public Spending on Pakistan’s Economic Growth and its Implications for Agriculture Sector: Evidence from 1972 to 2014.
The Dynamic Effect of Public Spending on Pakistan’s Economic Growth and its Implications for Agriculture Sector: Evidence from 1972 to 2014.
Tanweer Ahmed1*, Kashif Saeed Khan1, Zilakat Khan Malik1, Fazal Wahid1 and Muhammad Nadeem Iqbal2
ABSTRACT
This study aims to analyse the impact of public spending on economic growth in Pakistan. Various econometric techniques have been applied to estimate the relationship among public spending on education, health, road length, defence, trade openness, worker remittances, total cropped area and economic growth. Pakistan’ economic growth rate fluctuated from 1972 to 2014. During this period for some years, the economic growth was high while it slowed down in some years. The study utilised Annual time series data from 1972 to 2014. Empirical evidence suggests that public spending has a significant positive influence on economic growth. Augmented Dickey-Fuller (ADF) has been used for investigating the unit root in time series data. Johansen’s Cointegration test and error correction model (ECM) is applied to estimate the long run and the short run relationship amongst the variables. The long-run analyses revealed the existence of a positive relationship among variables. The coefficient of ECM term (-0.389026) was found to be negative and statistically significant, which validates stable long-run relationship among variables, with a speed of 39 per cent to restore disequilibrium in case of any shock. The empirical estimation reveals that public spending on education, health, total road length, trade openness, worker remittances and total cropped area have a strong positive impact on economic growth. Moreover, the study also examines the impact which Pakistan’s economic growth has had on the Agriculture sector. While public spending on defence has failed to contribute to economic growth. The study suggests the allocation of more resources to education, health, transport and communication for increasing Pakistan’s economic growth.
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