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Public Expenditure and Economic Growth in India: An Empirical Analysis Using Vector Autoregression (VAR) Model

Author

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  • Rashmi Gupta

    (Department Of Higher Education, Government of Gujarat, Ahmedabad, Gujarat India Author-2-Name: Swati Shastri Author-2-Workplace-Name: Associate Professor, Department Of Economics, Banasthali University, Dist.-Tonk, Rajasthan India Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)

Abstract

Objective - The objective of this study is to test direction of causality between components of public expenditure and economic growth in India. Methodology/Technique - The paper uses annual data for the period 1980-2015. To measure public expenditure, plan expenditure and non-plan expenditure are used. The econometric methodology employed is Vector Auto regression (VAR) model. Findings - First, the stationary properties of the data were tested using Augmented Dickey-Fuller (ADF) test, Dickey-Fuller (DF) test, and the Phillip-Perron (PP) test and found that variables were non-stationary in level, but stationary in first differences. Then, Johansen- Jueslius cointegration test was employed to test the long-run association among the variables and results suggest an absence of any long-run association between plan expenditure and non-plan expenditure and economic growth in India. The Granger Causality test suggests there is unidirectional causality running from economic growth and non-plan expenditure and plan expenditure and non-plan expenditure and absence of causality public expenditure and economic growth. Novelty - The results of the Forecast Error Variance Decompositions test indicated that innovations in the variables are mostly explained by their own shocks. The impulse responses of the economic growth, plan expenditure and non-plan expenditure with respect to identified shocks are consistent with the results of Variance Decomposition Analysis. Type of Paper - Empirical.

Suggested Citation

  • Rashmi Gupta, 2020. "Public Expenditure and Economic Growth in India: An Empirical Analysis Using Vector Autoregression (VAR) Model," GATR Journals jber189, Global Academy of Training and Research (GATR) Enterprise.
    • Handle: RePEc:gtr:gatrjs:jber189
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    References listed on IDEAS

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    More about this item

    Keywords

    Plan Expenditure; Non-plan Expenditure; Economic Growth; Unit Root; Cointegration Test; Granger Causality Test; Forecast Error Variance Decomposition; Impulse Responses;
    All these keywords.

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O49 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Other
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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