The Impact of Public Expenditure Components on Economic Growth in Pakistan.

Abstract

This study examines the relationship between health expenditure, expenditure on education, Gross Fixed Capital Formation, Military Expenditure, Fiscal Balance (Deficit) and economic growth in Pakistan. The period of study is from 1972 to 2015. ARDL Bounds Testing approach for co-integration and ECM Technique were applied to study the long run and short run relationship among the above mentioned variables. “Granger Causality Test” was applied to find out the direction of causality. The results reveal a long run relationship between Military Expenditure, Gross Fixed Capital Formation, Fiscal Balance and Economic Growth. The results of “ECM” show the short run relationship among these variables. However, there is no long run relationship between Health Expenditure, Expenditure on Education and Economic Growth. The speed of adjustment is high which 62.28% is. “Granger Causality” test reveals that “causality runs from Military Expenditure to Economic Growth”. It further reveals causality from health expenditure to fiscal balance and from fiscal balance to Military Expenditure. It is concluded that fiscal policy has an important role in boosting economic growth.