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Causal Relationship between Government Spending and Economic Growth in Rajasthan : A Toda - Yamamoto Approach


Affiliations
1 Research Scholar, Department of Economics, Central University of Rajasthan, Dist. Ajmer - 305 817, Rajasthan, India
2 Assistant Professor, Department of Management Studies, Birla Institute of Technology, P.O.Box: 41222, Academy Zone 03, Al Dhait South, Ras Al Khaimah, United Arab Emirates

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This paper examined the causal link between state government expenditure and net state domestic product of Rajasthan. The study tested the six versions of the Wagner law of state expenditure utilizing the annual time-series data of 44 years from 1970-71 to 2013-2014. The ARDL Model and Toda-Yamamoto approach were applied after testing the stochastic properties of the variables to analyze the long-run equilibrium relationship for all the six versions of the Wagner Law. The empirical results of the ARDL model asserted that there was no long-run relationship between public expenditure and economic growth. However, the results of the Toda-Yamamoto approach indicated that Peacock and Guffman versions were valid for Rajasthan. The findings of the causality analysis revealed that there was unidirectional causality from state government expenditure to net state domestic product and from state government expenditure to per-capita net state domestic product. The study concluded that the Rajasthan economy follows the Keynesian hypothesis of public expenditure and the public expenditure is the causal factor for the growth of net state domestic product in the state.

Keywords

Wagner's Law, Public Expenditure, Net State Domestic Product, Causality, ARDL Model, and Toda-Yamamoto Approach

C22, E62, H50

Paper Submission Date : October 5, 2015 ; Paper sent back for Revision : November 9, 2016 ; Paper Acceptance Date : January 9, 2017.

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  • Causal Relationship between Government Spending and Economic Growth in Rajasthan : A Toda - Yamamoto Approach

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Authors

Kirandeep Kaur
Research Scholar, Department of Economics, Central University of Rajasthan, Dist. Ajmer - 305 817, Rajasthan, India
Onkar Nath Mishra
Assistant Professor, Department of Management Studies, Birla Institute of Technology, P.O.Box: 41222, Academy Zone 03, Al Dhait South, Ras Al Khaimah, United Arab Emirates

Abstract


This paper examined the causal link between state government expenditure and net state domestic product of Rajasthan. The study tested the six versions of the Wagner law of state expenditure utilizing the annual time-series data of 44 years from 1970-71 to 2013-2014. The ARDL Model and Toda-Yamamoto approach were applied after testing the stochastic properties of the variables to analyze the long-run equilibrium relationship for all the six versions of the Wagner Law. The empirical results of the ARDL model asserted that there was no long-run relationship between public expenditure and economic growth. However, the results of the Toda-Yamamoto approach indicated that Peacock and Guffman versions were valid for Rajasthan. The findings of the causality analysis revealed that there was unidirectional causality from state government expenditure to net state domestic product and from state government expenditure to per-capita net state domestic product. The study concluded that the Rajasthan economy follows the Keynesian hypothesis of public expenditure and the public expenditure is the causal factor for the growth of net state domestic product in the state.

Keywords


Wagner's Law, Public Expenditure, Net State Domestic Product, Causality, ARDL Model, and Toda-Yamamoto Approach

C22, E62, H50

Paper Submission Date : October 5, 2015 ; Paper sent back for Revision : November 9, 2016 ; Paper Acceptance Date : January 9, 2017.




DOI: https://doi.org/10.17010/aijer%2F2017%2Fv6i1%2F111019