Impact of Government Spending, Public Debt, Corruption and Economic Growth of Pakistan: Comparative Analysis of Democratic and Military Regime (1999-2018)

Abstract

Economic growth is lifeline for any society and to keep the economy on track there are certain factor which need to be examined all the time. This research tries to identify relationship of corruption, public debt and public sector development expenditure on growth of the economy of Pakistan. For this research data from the FY1998 - FY2018 is used and data is of time series. The analysis includes four variables. Growth rate of GDP is taken as a dependent variable while corruption, public borrowing, and public sector development expenditures are independent variables. The Unit Root Test along with Phillips Perron is used to verify the stationarity of data under study. Co-integration estimation is also used to check the relationship and result shows the long-term relationship between three independent variables on growth of the economy of Pakistan. Apart from the above tests the Granger Causality Vector Error Correction (GCVEC) method is applied and that test has shown unidirectional relationship between independent variables under study and economy growth. There is no doubt that other macroeconomic variables also affecting the economic growth but the long term relationship of public borrowing, public sector development expenditure, corruption and economic growth has proved during military regime significance of these three variables are lesser than democratic regime. This study recommends that government should macro-economic variables through tight fiscal and monetary policies by effectively managing public sector development expenditure and corruption. Also, government should propose polices to reduce the public debt, through enhancing the tax base and lowering expenditures through structural reforms.