EconPapers    
Economics at your fingertips  
 

Dynamic Effects of Changes in Government Spending in Pakistan’s Economy

Attiya Javid () and Umaima Arif ()

The Pakistan Development Review, 2009, vol. 48, issue 4, 973–988

Abstract: This study analyses the effects of changes in government spending on aggregate economic activity and the way these effects are transmitted in case of Pakistan for the period 1971–2008. To analyse the transmission mechanism of government spending innovations, the Vector Autoregressive Model is estimated for following five variables: government spending per capita, GDP per capita, consumption per capita, debt to GDP ratio, long term interest rate and real exchange rate. The consumption and output respond negatively to the innovation in government spending which is consistent with the standard neoclassical model. The interest rates increase in the face of expansionary fiscal spending. As government debt builds up with fiscal expansion, the rising risk of default or increasing inflation risk reinforce crowding out through interest rates. The real exchange rate tends to appreciate in response to rise in government spending. This finding is according to the open economy literature and also with the conventional literature.

Keywords: Government Spending; Vector Autoregressive Model; Impulse Response Function; Neoclassical Model (search for similar items in EconPapers)
JEL-codes: E21 E62 E63 (search for similar items in EconPapers)
Date: 2009
References: Add references at CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://www.pide.org.pk/pdf/PDR/2009/Volume4/973-988.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pid:journl:v:48:y:2009:i:4:p:973-988

Access Statistics for this article

More articles in The Pakistan Development Review from Pakistan Institute of Development Economics Contact information at EDIRC.
Bibliographic data for series maintained by Khurram Iqbal ().

 
Page updated 2019-04-02
Handle: RePEc:pid:journl:v:48:y:2009:i:4:p:973-988