Abstract
The study examines the nexus between government spending and economic growth in the seven SAARC countries, namely Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka, for the period 1970–2007. Using panel cointegration and panel causality, the paper finds that government spending and economic growth is cointegrated, indicating the existence of long run equilibrium relationship between them. It also confirms the presence of bidirectional causality between government spending and economic growth, both in the short run and long run, except Pakistan and Sri Lanka. The implication of this paper is that increased government spending is both cause and consequence of increased economic growth.
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