The Effect of Macroeconomic Uncertainty on Consumption Expenditure in Case of Pakistan

Abstract

Government expenditure on consumption is the core issue in the macroeconomic theory. The determination of national economic growth and the improvement of economic production also play an important role in economic and technological progress. However, a high degree of macroeconomic uncertainty directly inhibits economic growth. This study empirically estimates the macroeconomic determinants of government spending in Pakistani economy. In this study, ARCH, GRACH model was used to calculate the volatility of different macroeconomic variables. Taking the period from 1975 to 2014 in Pakistan as an example, the ARDL model was used to examine the relationship between the volatility of macroeconomic variables and government spending. The research shows that the macroeconomic uncertainty caused by the fluctuation of macroeconomic variables has a significant impact on the government's consumption expenditure. Empirical results from the study show that Pakistan experienced more volatility in the macroeconomic variables, leading to more volatile government spending and private investment.