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Fiscal Policy, Institutions And Growth: New Insights

Author

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  • SAIMA NAWAZ

    (Department of Management Sciences, COMSATS Institute of Information Technology, Park Road, Tarlai Kalan, Islamabad 4550, Pakistan)

  • M. IDREES KHAWAJA

    (Pakistan Institute of Development Economics (PIDE), Quaid-i-Azam University Campus, Islamabad, Pakistan)

Abstract

The paper attempts to analyze the impact of fiscal policy on economic growth while considering level of development and controlling for state of institutions. We extend the Solow growth model by incorporating fiscal policy and institutions through using total factor productivity. Our empirical analysis includes a panel of 56 countries. The empirics demonstrate that impact of fiscal policy on growth is statistically insignificant in the full sample. However, splitting the sample into developed and developing economies, positive association with economic growth in developed economies and negative association in developing economies observed. Our findings thus inform that fiscal policy contributes positively to growth only in developed economies. The reason for this seems to be an enabling institutional environment in developed economies. This kind of enabling institutional environment allows fiscal policy to play positive role in developed economies and absence of such environment contributes to the negative impact of fiscal policy in developing economies.

Suggested Citation

  • Saima Nawaz & M. Idrees Khawaja, 2019. "Fiscal Policy, Institutions And Growth: New Insights," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(05), pages 1251-1278, December.
    • Handle: RePEc:wsi:serxxx:v:64:y:2019:i:05:n:s0217590816500296
    DOI: 10.1142/S0217590816500296
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    Citations

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    Cited by:

    1. Saima Nawaz & Saba Anwar & Nasir Iqbal, 2021. "The Spatial Effects of Road Infrastructure on Employment in Pakistan: Quantifying the Role of Complementary Factors," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 60(3), pages 309-330.
    2. Esther Acquah & Lorenzo Carbonari & Alessio Farcomeni & Giovanni Trovato, 2023. "Institutions and economic development: new measurements and evidence," Empirical Economics, Springer, vol. 65(4), pages 1693-1728, October.
    3. Suadat Hussain Wani & Effat Yasmin, 2023. "India’s trade with South and Central Asia: an application of institution-based augmented gravity model," Future Business Journal, Springer, vol. 9(1), pages 1-12, December.
    4. Fengsheng Chien & Ka Yin Chau & Talla M. Aldeehani & Pham Quang Huy & Luc Phan Tan & Muhammad Mohsin, 2022. "Does external debt as a new determinants of fiscal policy influence sustainable economic growth: implications after COVID-19," Economic Change and Restructuring, Springer, vol. 55(3), pages 1717-1737, August.
    5. Chen, Jian & Zhao, Di & He, Bin & Stanojevic, Savo, 2022. "How do fiscally created one-city monopolies cause intra-provincial inequality in China?," Land Use Policy, Elsevier, vol. 120(C).
    6. Nadeem Ul Haque & Durr-e-Nayab & Omer Siddique & Naseem Faraz, 2021. "Cash Poor, Perk Rich! Civil Service Compensation: Incentives, Dissatisfaction, And Costs," PIDE Research Report 2021:8, Pakistan Institute of Development Economics.
    7. Nasir Iqbal & Musleh ud Din & Ejaz Ghani, 2017. "The Fiscal Deficit and Economic Growth in Pakistan: New Evidence," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 22(Special E), pages 53-72, September.
    8. Nasir Iqbal & Saima Nawaz, 2017. "Pakistan’s Bilateral Trade under MFN and SAFTA: Do Institutional and Non-Institutional Arrangements Matter?," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 56(1), pages 59-78.
    9. Nawaz, Saima & Mangla, Inayat Ullah, 2021. "The economic geography of infrastructure in Asia: The role of institutions and regional integration," Research in Transportation Economics, Elsevier, vol. 88(C).

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