The Impact of government expenditure on economic growth: A Study of SAARC countries

Abstract

Abstract In this research study, the main goal is to determine whether government expenditure has impact on economic growth in the SAARC countries. Therefore, the primary goal is to determine whether government expenditure leads to economic development in SAARC countries and vice versa and whether a long-run equilibrium is a significant relationship between the two variables. The study relied solely on secondary data for its findings. Using quantitative techniques such as regression, co-integration and granger causality in the perspective of panel data from SAARC countries including Bangladesh, India, Pakistan, Sri Lanka, and Bhutan from 2011 to 2020, the authors developed their findings in the context of the SAARC countries. To conduct the regression analysis, the Eviews software was employed. Data Were obtained from the United Nations Conference on Trade and Development (UNCTAD), the Ministry of Finance websites of selected nations, macroeconomic trends, the World Bank, and Bangladesh Bank. The random-effects panel OLS model was used to generate the results. As with the preceding methodology, the study discovered an intriguing outcome. First and foremost, Government spending has a strong positive impact on GDP in SAARC countries, according to the empirical data. Second, in SAARC countries, government expenditure and economic growth has a long lasting relationship. In SAARC countries, there is unidirectional causality between GDP and government expenditure in the region . As a result, the study has been validated in that it is consistent with the Keynesian theory as well as Wagner's Law. Over this, SAARC countries should boost their government by being involved in Spurring economic development. However, suppose government spending does not correspond to the needs of the economy. In that case, it may have a significant negative impact on the economy of a country, resulting in society carrying the burden of the consequences.