Long-Run Relationship Between Fiscal Policy and Economic Growth in Asia: Evidence Using Pedroni’s Cointegration Approach

Abstract

This paper investigates the long-run relationship between fiscal policy and economic growth in Asia between 1982 and 2001 through the application of Pedroni’s Cointegration approach. It examines two different channels through which fiscal policy can affect long-run economic growth in Asian countries. The first channel is when components and aggregate government expenditure affect the real per capita GDP, and the second channel is when the distortionary taxation, budget balance, and aggregate of other fiscal variables affect the real per capita GDP. There is a positive and statistically significant impact of health and education expenditure, aggregate of government expenditure, and aggregate of other fiscal variables on real per capita GDP. It was found that the defence expenditure, distortionary taxation, and budget balance are significantly and negatively related to real per capita GDP. The Pedroni Cointegration result establishes a long-run relationship between fiscal policy and economic growth.

Fiscal Policy, Institutional Quality and Economic Growth: Some Evidence from Pakistan

“…Pakistan's government debt is growing, and the economy is suffering from fiscal imbalance, necessitating the need for long-term growth. It is hard to build the economy effectively using traditional means such as national income and public loans (Abdullah et al, 2007).…”