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.
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