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Public Expenditure and Economic Growth: A Time Series Analysis on Bangladesh Economy


Md. Shahjahan, Nabila Nuzhat

The purpose of the paper is to analyze the relationship between public expenditure and economic growth in Bangladesh during the period from 1974/75 to 2010/11. First, the paper studies the linkage between various components of public expenditures and economic growth in Bangladesh in their various forms. Second, the paper finds the existence trends of public expenditures on education, health and social services, community, social and personal services, public administration and defense, transport, storage and communication. The paper performs Augmented Dicky Fuller (ADF) and Phillips-Perron (PP) tests to examine the time series properties of the considered variables. Johansen and Juselius testing approach to co-integration confirm the existence of long run relationship among variables. Finally, the paper examines both short-term and long-term dynamic relationships between the considered variables within an error-correction mechanism and Granger causality test that establishes unidirectional causality between the considered variables.

Keywords: Public expenditures, economic growth, integration, cointegration, error correction model and Granger causality.

JEL Classification:  C22, H50, O47