The Effect of Public Sector Development Expenditures and Investment on Economic Growth: Evidence from Pakistan

Syed, Shujaat Ahmed and Javed, Asif (2017): The Effect of Public Sector Development Expenditures and Investment on Economic Growth: Evidence from Pakistan.

Abstract

It is an established fact that there is strong association between investment and economic growth of a country but no such direct consensus had been developed on the type of investment .i.e. what are the different sectors in which investment has led to long term impact and did contributed to the growth. The current study in this regard will focus on investigating the relationship of Public Sector Development Programme (PSDP), Foreign Direct Investment (FDI) and Private Investment with the growth. The study will use data from 1980-81 to 2015-16 in this regard and employ Johansen cointegration to investigate the long run relationship. It is found that with foreign direct investment, health expenditure and transport and communication expenditure has negative relationship in the long run. Where as private investment, education expenditure and expenditure on housing has positive relationship with growth. Based on these findings recommendations were totally investment centric with primary focus on reduction in taxes and other barriers to bring in more investment in long run. Beside taxation, recommendations were made on administrative balance both in tax system and public sectors which were made part of provincial domain after 18th amendment.

• Item Type: MPRA Paper
• Language: English
• Keywords: Public Sector Development Programme, Foreign Direct Investment, Private Investment
• Subjects: D - Microeconomics > D9 - Intertemporal Choice > D92 - Intertemporal Firm Choice, Investment, Capacity, and Financing; H - Public Economics > H5 - National Government Expenditures and Related Policies > H51 - Government Expenditures and Health; H - Public Economics > H5 - National Government Expenditures and Related Policies > H52 - Government Expenditures and Education; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

References

Ahmed, V, Abbas, A and Ahmed, S 2013, Public Infrastructure and Economic Growth in Pakistan: A dynamic CGE-Micro Simulation Analysis, Springer, 117-143

Akram, M and Khan, F, J 2007, Health Care Services and Government Spending in Pakistan, PIDE Working Papers, 32

Ali, S 2010, Does the Choice of Government Expenditures Affect Poverty? Time Series Evidence from Pakistan, International Conference on Applied Economics

Asghar, N, Awan, A and Rehman, H 2012, Government Spending, Economic Growth and Rural Poverty in Pakistan, Pakistan Journal of Social Sciences, vol. 32, No. 2, pp. 469-483

Asghar, N, Azim, P and Rehman, H 2011, Impact of Government Spending in Social Sectors on Economic Growth: A Case Study of Pakistan, Journal of Business & Economics, vol. 3, No.2, pp. 214-234

Ashghar, Z and Zahra, M 2012, A Benefit Incidence Analysis of Public Spending on Education in Pakistan Using PSLM Data, The Lahore Journal of Economics, 17:2, pp. 111-136

Aurangzeb 2003, Relation between Health Expenditure and GDP in an Augmented Solow Growth Model for Pakistan: An Application of Co-integration and Error-Correction Modeling, The Lahore Journal of Economics, vol. 8, No.2

Dritsakis, N., Varelas, E., & Adamopoulos, A. (2006). The main determinants of economic growth: An empirical investigation with Granger causality analysis for Greece. European Research Studies Journal, 9(3-4), 47-58

Government of Balochistan 2013, Balochistan Education Sector Plan 2013-18, Policy Planning and Implementation Unit, Education Department, Government of Balochistan

Government of Khyber Pakhtunkhwa 2015, Budget Strategy Paper 2015-16, Government of Khyber Pakhtunkhwa

Government of KPK 2010, Khyber Pakhtunkhwa Health Sector Strategy 2010-17, Government of Khyber Pakhtunkhwa

Government of Sindh 2012, Sindh Health Sector Strategy 2012-2020, Government of Sindh

Government of Sindh 2015, Budget Strategy Paper 2015-16 to 2017-18, Economic Reform Unit, Finance Department, Government of Sindh

Government of the Punjab 2015, Punjab Growth Strategy 2018: Accelerating Economic Growth and Improving Social Outcomes, Government of the Punjab

Hakro, A, N and Akram, M 2007, The Incidence of Government Expenditures on Education and Health: Microeconomic Evidence from Pakistan, The Lahore Journal of Economics, 12:2, pp. 27-48

Hussain, F, Hussain, S and Erum, N 2008, Is Defense Expenditure Pro Poor or Anti Poor in Pakistan? An Empirical Investigation, Paper Presented at 30th AGM Pakistan Institute of Development Economics

Hussain, F, Qasim, M, A and Sheikh, K, M 2003, An Analysis of Public Expenditure on Education in Pakistan, The Pakistan Development Review, 42:4, pp. 771-780

Iqbal, N, Muselh ud Din and Ghani, E 2013, Fiscal Decentralization and Economic Growth: Role of Democratic Institutions, Pakistan Institute of Developing Economics, Working Paper No. 89

Johansen, S. 1988, Statistical Analysis of Cointegrating Vectors. Journal of Economic Dynamics and Control. Vo. 12, pp. 231-254.

Kalim, R and Hassan, M, S 2013, Military Expenditure and Poverty in Pakistan, Proceedings of 3rd International Conference on Business Management

Kalim, R and Hassan, M, S 2014, Public Defense Spending Poverty in Pakistan, Review of Public Economics, 211, 93-115

Kelegama, S (2012), Foreign Aid in South Asia: The Emerging Scenario, SAGE

Mallick, L., Das, P. K., & Pradhan, K. C. (2016). Impact of educational expenditure on economic growth in major Asian countries: Evidence from econometric analysis. Theoretical and Applied Economics, 22(2 (607), Summer), 173-186

National Association of Home Builders 2009, Housing's Contribution to Gross Domestic Product. Retrieved February 12, 2010

Pasha, H, Imran, M, Iqbal, A, Ismail, Z, Sheikh, R and Sherani, S 2011, Review and Analysis of Pakistan’s Public Investment Program, International Growth Centre

PILDAT 2012, Understanding Punjab Health Budget 2012-13: A Brief for Standing Committee on Health Provincial Assembly of the Punjab, Pakistan Institute of Legislative Development and Transparency

RAFTAAR 2015, Pakistan’s Public Expenditure: Insights & Reflections, Research & Advocacy for the Advancement of Allied Reforms

SDPI 2013, Managing Intra-Country Growth Disparities in South Asia, 6th South Asian Economic Summit

Shahbaz, M, Afza, T and Shabbir, M, S 2013, Does Defence Spending Impede Economic Growth? Cointegration and Causality Analysis for Pakistan, Defence and Peace Economics, vol. 24, No.2, 105-120

Shuaib, I., & Ndidi, N. D. E. (2015). Capital formation: impact on the economic development of Nigeria 1960-2013. European Journal of Business, Economics and Accountancy, 3(3), 23-40

Wahab, M, A, Ahmed, V, and Javed, A 2013, Human Resource Development, Government Spending and Productivity of Human Capital in Pakistan, SAARC Journal of Human Resource Development, vol. 9, No.1. pp. 32-48

Zeshan, A, and Ahmed, V 2014, How Spending on Defense Versus Human Capital impacts Economic Productivity in South Asia?, International Journal of Economics and Empirical Research. 2(2), 74-83