Asian Research Thesis Index

Abstract

The purpose of this study is to examine the influence of government spending on agricultural and economic growth in Pakistan. Furthermore, the study also determines the relationship between direct tax revenue, indirect tax revenue, non-tax revenue and total government spending in the context of Pakistan. Pakistan’s agriculture growth has registered mixed trends from 1972 to 2014. Empirical evidence from developing countries suggests that public spending has a profoundly positive association with agricultural and economic growth. Agriculture is the main sector of Pakistan’s economy, accounts for around one-fifth of Gross Domestic Product (GDP), engages about half of the country’s labour force and provides livelihood to 65 per cent of the rural population. The study has utilised time series data from 1972 to 2014. The stationarity of time series data has checked through Augmented Dickey-Fuller (ADF) test. Johansen Co-integration test and Error Correction Model (ECM) have employed for the long run and short run empirical estimation. The results indicate a positive association between public spending, agriculture value added per worker and economic growth in the short run and long run. Similarly, there subsists a positive short run and the long run association between direct tax revenue, indirect revenue, non-tax revenue and total government spending. It is obtained from the regression results that public spending on education, road length, number of tube wells and improved seed distribution have a significant and positive influence on agriculture value added per worker. Whereas, the impact of public spending on health was found positive but insignificant on agriculture value added per worker. Similarly, public spending on education, health, and road length have shown a positive influence on economic growth. Public spending on defence has positively while insignificantly influenced economic growth. Furthermore, the findings reveal that direct tax revenue, indirect tax revenue and non-tax revenue are positively associated with total government spending. Based on the regression results, the study recommends the allocation of greater resources to education, health and transport and communication sectors for agricultural growth and development.

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