تورم، رشد اقتصادی و مخارج دولتی پاکستان

This study is going to explore the relationship among the rate of inflation, economic growth and government expenditure in case of Pakistan. In this study, the government expenditure has been disaggregated in to the government current expenditure and the government development expenditure. This investigation is made by using the time series data during the period 1980-2010. The econometrics tools like Augmented Dickey Fuller (ADF) unit root test, ARDL, Johansen cointegration and Granger-causality test are used to investigate such relationship. The results derived by applying these econometrics tools show that there is a long term relationship between rate of inflation, economic growth and government expenditure, it means the government expenditures yield positive externalities and linkages. In the short run, the rate of inflation does not affect the economic growth but government expenditures do so. The causality test results show that there is unidirectional causality between rate of inflation and economic growth and; economic growth and government expenditure.

In the past few years in the economic history of Pakistan, the pace of economic growth is gradually decreasing but the size of government expenditure is gradually increasing. According the Handbook of Statistics on Pakistan Economy, 2010 published by State Bank of Pakistan (SBP), in 2009 the size of government expenditure increases to 9.41% from the previous year, but the GDP increases with 3.63% from previous year. The condition is consider to be more worse, if we see the stat of 2008, the size of government expenditure increases to 40.76% from the previous year and GDP increases to 7.19%. The Table 1 shows the percentage change in the economic growth and government expenditure, the economic growth of Pakistan:In 2001 and 2003, the government was able to cut the government expenditure from the previous year by - 4.502% and -9.288% respectively, the negative sign shows the reduction of expenditure from the previous year. In 2003 and 2004, the percentage change in GDP is greater than the government expenditure, i.e. the change in GDP is 4.726% and 7.483% respectively; and the change in the government expenditure is -9.288% and 4.335% respectively. As the government expenditure increases, there is need of more finances to meet such expenditures. Therefore, the government knocks at the door of international financial institutions like IMF, World Bank, Asian Development Bank; or borrows from the central bank like SBP; or imposes more taxes on the general public to meet their expenditure. In the previous literature, the ultimate effect of such loans or borrowings or imposing of such taxes had a serious negative impact on the economic growth of the country. According to Landau, 1985 the borrowing from the central bank, tend to increase the money supply, which is major reason of increasing the inflation and causes the uncertainty in the economy. The borrowing from the general public causes the interest rate to increase and reduces the further investment in the country. The enforcement of more taxes causes the distortion in the economy and reduces the output and growth. The aim of this study is to complement the empirical investigation of inflation in Pakistan. More specifically:

The relationship between inflation and economic growth has been the subject of extensive research over the past of few decades. This research is going to explore the same relationship among inflation, economic growth and government expenditure, in case of Pakistan. At the first step, unit root has been tested and the test results indicate that the time series data is stationary. Secondly, ARDL has been used to measure the long run and short run estimates. The findings are disagreeing to the new classical proposition (Ricardian equivalence). The negative high coefficient of inflation had been found in the case of Pakistan, as in UK. It states that if the rate of inflation exceeds the threshold level the growth nexus is strongly (negatively) affected by the inflation. The estimated relationship between real income and government expenditure is positive and the same sign had been found in the case of Australia, Canada, Finland, New Zealand, Spain, Sweden, UK and US (Atesoglu, 1998; Mallik & Chowdhury, 2002). As the government expenditure disaggregated into government current expenditure and government development expenditure, the coefficient of government current expenditure is statistically insignificant. But, the coefficient of government development expenditure is statistically significant, that shows that the government expenditures yield positive externalities and linkages. The robustness has been tested by applying cointegration and the results reported that there is long run equilibrium exists between the variables. The Granger Causality test has been used to verify the direction of causality between the variables of Pakistan. The test results show that there is unidirectional causality inflation and economic growth. The test results also show that there is no causality between inflation and government expenditure. In case of economic growth and government expenditure there is unidirectional causality. The different diagnostics tests are used: to investigate the autocorrelation, the Breusch-Godfery Langrage Multiplier (LM) test is applied and the results have suggested that there is no autocorrelation. The model has passed through the stability test. The cumulative sum of recursive residuals (CUSUM) and the cumulative sum of squares of recursive residuals (CUSUMSQ) are used as the last stage of ARDL estimation to check that all coefficients in ECM model are stable and applicable for an effective policy analysis.