FACTOR OUTPUT AND ECONOMIC GROWTH IN PAKISTAN: DOES FISCAL POLICY MATTERS?

Abstract

This study explores a new stream of research shedding light on the effectiveness of fiscal policy on economic growth in Pakistan by exploring the role of factor output. For empirical investigation the Autoregressive Distributed Lag (ARDL) model is applied and  to check the stationarity behavior of all the variables Augmented Dickey-Fuller (ADF) unit root test is applied. Annual time series data from 1971 to 2018 is used to investigate the effect of government expenditures, gross fixed capital formation, indirect and direct taxes  on gross domestic product (GDP). The empirical results of the study revealed that government expenditures, gross fixed capital formation, indirect and direct taxes have significant positive impact on economic growth in Pakistan. It is suggested that the expansionary fiscal policy is very effective to surge economic growth in Pakistan.