Cointegration and Causality Analysis of Public Expenditure and Growth with Special Reference to Rajasthan

Abstract

The present study empirically analyzed the relationship between State Government Expenditure and Net State Domestic Product for Rajasthan Economy from period 1980 to 2014. The study utilizes various econometrics techniques of the time series data analysis such as ADF Test for Unit Root, Engle and Granger method and Johansen techniques for Cointegration and to find the causality between both the variables the study employed the Vector Error Correction Method. The results of the study revealed that there is long run relationship between both the variables. The findings of the Vector Error Correction Method states that there is unidirectional causality between both the variables and the direction of the causality is from Net State Domestic Product to State Government Expenditure which implies that the Rajasthan Economy follow the Wagner law of the Public Expenditure reveals the Economic Growth is the causal factor to the Growth of the Government Expenditure.