Public Expenditure, Employment and Economic Growth Nexus: An Empirical Evidence from Pakistan

Abstract

Study investigates the influence of public expenditure, employment and economic growth in case of Pakistan through making use of time series data over the period 1991-2020. It investigates either the impact of public expenditure, employment and economic growth is good or bad. It explores the long run and short run relationship among public expenditure, employment and economic growth. To investigate short run and long run relationship among selected variables, we applied Autoregressive Distributed Lag model for bound testing approach. Many of the related research studies have been reviewed in this research. Use of time series data we constructed two models. The first model explore the impact on public expenditure on economic growth by taking GDP as a proxy of economic growth of dependent variable and independent variables such as Gross fixed capital formation, Gross national expenditure, Consumer price index, Interest rate and labor force participation rate. The results show that there is a positive and significant relationship between public expenditure and economic growth both in long run and short run. The objective of the second model is to investigate the impact of Employment and economic growth by taking GDP as dependent and total employment, gross capital formation, interest rate, labor force participation rate and consumer price index as explanatory variable. The results suggest there is positive relationship between employment and economic growth both in long run and short run. It is recommended that government should enhance development programs for welfare of economy.