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Government Expenditure and Economic Growth: Evidence from India

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  • Ranjan Kumar Dash
  • Chandan Sharma

Abstract

The literature regarding the impact of government expenditure on economic growth is at best mixed. Given the conflicting results, we examine the impact of government developmental expenditure on India’s economic growth. Our study spans the period from 1950 to 2007. We have employed standard time series technique (unit root test and cointegration analysis) for our analysis. By applying Engle and Granger two-step methodology for cointegration analysis, we found that investment and trade have positive impact on economic growth, as their coefficients are significant at 5% level of confidence. The impact of government expenditure on economic growth, which is the focus of this study, is found to be positive and significant at 1% confidence level. From short run analysis, it is clear that government expenditure is also significant, indicating that it has a permanent and transitory effect. The Error Correction Model (ECM) term suggests that if we insert a shock into the model through one of these variables, approximately 33% of the deviation will be corrected within the first year. This is a rather slow adjustment process.

Suggested Citation

  • Ranjan Kumar Dash & Chandan Sharma, 2008. "Government Expenditure and Economic Growth: Evidence from India," The IUP Journal of Public Finance, IUP Publications, vol. 0(3), pages 60-69, August.
    • Handle: RePEc:icf:icfjpf:v:06:y:2008:i:3:p:60-69
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    Cited by:

    1. Brenda Molonko & Samuel Nathaniel Ampah, 2018. "Moderating Effect of Political Risk on the Relationship between Capital Expenditure and Sectoral Economic Growth in Kenya," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(1), pages 129-139, January.
    2. Asuamah Yeboah, Samuel, 2018. "Do government activities determine electricity consumption in Ghana? An empirical investigation," MPRA Paper 89408, University Library of Munich, Germany.
    3. Monojit Chatterji & Sushil Mohan & Sayantan Ghosh Dastidar, 2014. "Relationship Between Trade Openness And Economic Growth Of India: A Time Series Analysis," Journal of Academic Research in Economics, Spiru Haret University, Faculty of Accounting and Financial Management Constanta, vol. 6(1 (March)), pages 45-69.
    4. Sylvia Uchenna Agu & Ifeoma Mary Okwo & Okelue David Ugwunta & Adeline Idike, 2015. "Fiscal Policy and Economic Growth in Nigeria," SAGE Open, , vol. 5(4), pages 21582440156, November.
    5. R.A.Susantha Kumara Ranasinghe & Ichihashi Masaru, 2014. "The Composition of Government Expenditure and Economic Growth : The Case of Sri Lanka," IDEC DP2 Series 4-7, Hiroshima University, Graduate School for International Development and Cooperation (IDEC).
    6. Nwaoha, William Chimee & Onwuka, Onwuka Okwara & Ejem,Chukwu Agwu, 2017. "Effect of Aggregated and Disaggregated Public Spending On the Nigerian Economy (1980-2015)," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 3(4), pages 44-53, 04-2017.
    7. Ramesh Chandra Das & Enrico Ivaldi, 2020. "Growth and Convergence of Social Sectors’ Expenditure in Indian States: Upshots from Neoclassical Growth and Panel Unit Roots Models," Journal of Infrastructure Development, India Development Foundation, vol. 12(1), pages 69-83, June.
    8. A Alodadi & J Benhin, 2015. "Long Term Economic Growth in Oil-Rich Saudi Arabia: What is the role for non-oil sectors?," Economic Issues Journal Articles, Economic Issues, vol. 20(1), pages 109-130, March.
    9. Erum, Naila & Sohag, Kazi & Said, Jamaliah & Musa, Kazi & Asghar, Muhammad Mansoor, 2024. "Governance, fiscal expenditure, and economic growth in OIC countries: Role of natural resources and information communication technology," Resources Policy, Elsevier, vol. 90(C).
    10. Emmanuel Yeboah Lartey & Alhassan Musah & Bismark Okyere & Abdul-Nasir Yusif, 2018. "Public Debt and Economic Growth: Evidence From Africa," International Journal of Economics and Financial Issues, Econjournals, vol. 8(6), pages 35-45.
    11. Wafa Ghardallou & Abdelkader Boudriga, 2014. "Financial Development and Democracy: is the Relationship Non-Linear?," Working Papers 886, Economic Research Forum, revised Dec 2014.
    12. Yadawananda Neog, 2019. "Does Fiscal Spending Promote Economic Growth in India? An Application of Toda-Yamamoto Causal Approach," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 23-40.
    13. Ocheni S.I., 2018. "Empirical Examination of the Effects of Government Spending on the GDP Growth Rates of Nigeria," Indian Journal of Commerce and Management Studies, Educational Research Multimedia & Publications,India, vol. 9(3), pages 26-31, September.
    14. Waqar Muhammad Khan & Tahira Ilyas & Aneela Akhtar Chattha, 2023. "Exploring the Drivers of Government Expenditure Patterns in Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 12(4), pages 689-699.

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