Impact of Expenditure on Economic Growth in Pakistan

Transcription

1 Impact of Expediture o Ecoomic Growth i Pakista Faqeer Muhammad 1 Correspodig Author, 1 PhD studet at Jiagxi Uiversity of Fiace ad Ecoomics, Chia [email protected] Dr. Togsheg Xu 2 2 Professor at Jiagxi Uiversity of Fiace ad Ecoomics, Chia Xu @126.com Rehmat Karim 3 3 Lecturer Karakoram Iteratioal Uiversity, Gilgit-Baltista [email protected] DOI: /IJARBSS/v5-i2/1480 URL: Abstract This study aimed to fid out the impact of expediture o ecoomic growth i Pakista, usig the time series data for the period 1972 to Secodary data was acquired from World Developmet idicators ad Pakista Bureau of Statistics. Augmeted Dicky Fuller Test (ADF) test was applied to check the statioarirty of the data. Johase Coitegratio ad Grager Causality tests were applied to empirically ivestigate the relatioship betwee give variables (expediture ad ecoomic growth) i Pakista. The coitegratio results idicated that there is o ay relatioship betwee expediture ad atioal icome i the log ru. Keywords: Public Expediture, Error Correctio Mechaism, Wager Law, Icome, Causality Itroductio Theoretically the two opposite views about relatioship betwee ecoomic growth ad atioal icome are Keyesia ad Wager s view. Accordig to Wager (1890) public expediture rises as a results of rise i real per capita icome kow as Wager s Law. I short the rise i govermet expediture is the outcome of ecoomic growth ad causality should ru from atioal icome to Gov. Expediture. While Keyesia cosider ecoomic growth as a idepedet variable ad ecoomic growth is due to public expediture. Keyes support risig govermet expediture for ehacig ecoomic growth (short term & log term growth). I Keyesia view casualty should goes from govermet expediture to atioal icome. Several empirical studies have bee coducted i coutries aroud the world for ivestigatio of existece of Keyesia ad Wager s Hypothesis. The empirical research of Sriivasa (2013) 231

2 ad Ebaidalla (2013 supports Wager s Law. However empirical research of Musgrave (1969) & Ma (1980) did ot support both the views. There are six various versio of Wager hypothesis. First model which is give by Peacock- Wisema (1961), secod model is preseted by Gupta (1967), third model by Goffma (1968), fourth model by Pryor (1969), fifth by Musgrave (1969) & sixth model is give by Ma (1980) are give below. Model 01: l (Gex) = α + βl (Gdp) + u Model 02: l (Gex/ Pop) = α + βl (Gdp /Pop) + u Model 03: l (Gex) = α + βl (Gdp/ Pop) + u Model 04: l (Gce) = α + βl (Gdp) + u Model 05: l (Gex/ Gdp) = α + βl (Gdp/ Pop) + u Model 06: l (Gex /Gdp) = α +βl (Gdp) + u Where l =atural log, Gexp = Govermet Expediture, Gce = Govermet Cosumptio expediture, Pop= populatio This study aimed to test the two hypotheses about expediture ad ecoomic growth for Pakista. LITERATURE REVIEW Nkiru ad Daiel (2013) examied the relatioship amog ecoomic ad govermet expediture by usig ECM for Nigeria. The authors used aual data from 1977 to Expediture o educatio was take as govermet expediture for Nigeria i the study. The authors foud sigificat ad positive effect of expediture o growth. However, Sevieteyi (2012) also coducted study for Nigeria ad foud that Wager Law does ot exist i Nigeria but the results are supportig Keyesia hypothesis. Author used Toda-Yamamoto Grager Causality test ad Coitegratio test i the give study. Abbas ad Afzal (2010) tested the validity of Wager hypothesis for Pakista. They have used time series data of Pakista from ( ) ad used Coitegratio ad Grager Causality test. Authors have examied the Wager Law for four periods i Pakista. The four periods are , , , ad Accordig to results Wager Hypothesis does t hold for the period The results of causality shows that amog fiscal deficit ad public spedig there is uidirectioal causality. Similarly, icome ad fiscal deficits also have uidirectioal causality. However, causality does ot exist betwee icome ad public spedig. Shams ad Murad (2009) test the Wager Law i Bagladesh by usig Grager Causality test ad Coitegratio test. The study period was to The authors have test all the five versios of Wager Law for Bagladesh. Accordig to author s fidigs absece of Wager Law i Bagladesh. Moosa (2013) results show existece of Wager s hypothesis i Saudi Arab. For empirical aalysis the author used six differet versio of Wager s Law by usig Error Correctio Mechaism (ECM) ad Coitegratio for GDP (real) ad GDP (o-oil). The data for this research was aual data from The studies of Mahjoub (2013) foud existece of 232

3 Wager Hypothesis i Suda. Similarly, Sriviasa (2013) results shows existece of Wager hypothesis i Idia from Ju Huag (2013) tests the Wager Law for Taiwa Chia. He used Toda ad Yamamoto causality test ad Boud test. For empirical aalysis aual data from 1979 to 2012 has bee used. The results of both tests idicates absece of causality amog variables (atioal icome ad govermet expediture) for both coutries alog with i log ru there is o relatioship amog atioal icome ad govermet expediture i Chia ad Taiwa. Methodology For empirical ivestigatio of log ru relatioship amog Expediture (LEXP) ad ecoomic growth (lgdp) I have used Johase Coitegratio ad Causality Test. The reaso for choosig these tests is to fid out the causal relatioship betwee variables ad to kow the log ru relatio. The period of study is For this study the variables are Gross atioal expediture ad Gross domestic product of Pakista. Johase test has bee used for kowig the log ru relatioship while grager causality test is used to check the causal relatio amog variables of the study. The data sources are World Developmet idicators ad Pakista Bureau of Statistics. Augmeted Dicky Fuller Test is used to check the statioary ad o statioary i the data. Grager Causality Test Followig model is proposed for Grager Causality test LNGDPt = βo + LNEXPt = λo + i1 j1 β1lngdpt-1 + λ1lngdpt-1 + j1 j1 β2 LNEXPt-1 +µt λ2 LNEXPt-1 +vt Where LNEXPt = Natural logarithm of Expediture LNGDPt = Natural logarithm of Gross Domestic Product µt & vt = Error Term DATA ANALYSIS AND RESULTS: Acquired secodary data was processed ad aalyzed usig E-Views-7 software. Table-1 ad Table-2 shows the results of Augmeted Dicky Fuller (ADF) for variable expediture (EXP) & Gross domestic product. Both variables are trasformed ito atural logarithm form represeted as LN. The variables lexp & lgdp at level are o-statioary. They became statioary after first differece. Isert Table 01 From results of trace statistics (Table 3) trace statistics < critical value, therefore we caot reject ull hypothesis ad hece we coclude that variables are ot itegrated. Similarly Max 233

4 Eige Statistics (Table 4), we caot reject ull hypothesis because max. Eige stats < critical value which meas variables have ot log ru relatioship amog each other. Isert Table 02 & 03 Pairwise Grager Causality test result shows o causality betwee lgdp ad LEXP i Pakista for study period.the results idicates o-existece of Wager s Law ad Keyesia Law i Pakista. The study results are supportig the views of Musgrave (1969), Ma ad empirical studies coducted by (1980) Shams ad Murad (2009) for Bagladesh, Ju Huag (2013) for Taiwa Chia. Isert Table 04 Coclusio The research aims at aalyzig impact of expediture o ecoomic growth i Pakista. Variables of the study are iitially o-statioary (at level) they are coverted i to statioary by takig first differece. Results of coitegratio show that there is o ay relatioship i log ru amog growth ad expediture. Similarly, pairwise causality test also idicates o causal relatios amog variables. The results are supportig the views of Musgrave (1969) & Ma (1980) accordig to them expediture ad growth have ot causal relatio. However, this empirical research does t support Keyesia ad Wager hypothesis i Pakista for study period. The implicatio from this study is that expediture is ot a importat tool for achievig growth rate i Pakista. Refereces Afzal, M., & Abbas, Q. (2010). Wager s Law i Pakista: Aother look. Joural of Ecoomics ad Iteratioal Fiace, 2(1), Ageli, M.M. (2013). Wager s Law i Saudi Arabia : A Ecoometric Aalysis. Asia Ecoomic ad Fiacial Review, 3(5), Bağdige, M. & Çetitaş, H. (2003). Causality betwee Public Expediture ad Ecoomic Growth: The Turkish Case. Joural of Ecoomic ad Social Research, 6(1), Chimobi, P. O. (2009). Govermet Expediture ad Natioal icome: A Causality Test for Nigeria. Europea Joural of Ecoomic ad Political Studies, Vol. 2 No. 2. Ebaidalla, M.E. (2013). Causality betwee Govermet Expediture ad Natioal Icome: Evidece from Suda. Joural of Ecoomic Cooperatio ad Developmet, 34(4),

5 Husai, U. I.F. (2011).Keyes versus Wager: Aggregated ad Disaggregated Aalysis of Public Expediture i Selected South Asia Coutries. Iteratioal Research Joural of Fiace ad Ecoomics, issue 67 Ju Huag, C. (2006). Govermet expeditures i Chia ad Taiwa: Do they follow Wager s Law? Joural of Ecoomic Developmet, Vol. 31, No.2. Patricia, C.N. & Izuchukwu, C. D. (2013). Impact of govermet expediture o ecoomic growth i Nigeria. Iteratioal Joural of Busiess ad Maagemet Review, 1(4) Shams, A.N.M. & Murad, W.M.S. (2009). Coitegratig Aalysis, Causality Testig ad Wager s Law: The Case of Bagladesh. The Jahagiragar Review, Part II: Social Sciece, 32 Vol. XXXIII. Sriivasa, P. (2013). Causality betwee Public Expediture ad Ecoomic Growth: The Idia Case. Iteratioal Joural of Ecoomics ad Maagemet, 7(2), Sevieteyi, N.L. (2012). Govermet expediture ad ecoomic growth i Nigeria: A empirical ivestigatio ( ). The Joural of Ecoomic Aalysis, 111(1), The World Bak (2014). World Developmet Idicators (2014), The World Bak Group Verma, S. & Arora, R. (2013). Does the Idia Ecoomy Support Wager s Law? A Ecoometric Aalysis. Eurasia Joural of Busiess ad Ecoomics, 3(5),

6 Table 01: ADF test Results Both variables (lgdp ad LEXP) became statioary at first differece. At level itercept Tred ad itercept Noe LGDP LEXP At First Differece LGDP * * * LEXP * * * *Shows sigificace level at 5 %. Table 02: Trace Statistics Hypothesized Number of Coitegratio Eigevalue Trace stats Critical value (5%) Prob. Noe At most Note: Values are rouded to three figures after decimal. Table 03: Maximum Eigevalue Hypothesized Number of Coitegratio Eigevalue Trace stats Critical value (5%) Prob. Noe At most Note: Values are rouded to three figures after decimal. Table 04 Pairwise Grager Causality Test Ho (Null Hypotheses) Observatios F-Stats P-value LNGDP does ot Grager Cause LNEXP LNEXP does ot Grager Cause LNGDP Note: at lag 2 236