The Growth Effect of Government Expenditure in Jammu & Kashmir

Abstract

Purpose : The paper examined the growth impact of aggregate government expenditure and its various components in Jammu & Kashmir using time series data from 1981–2020. At the disintegrated level, the study assessed the growth impact of government expenditure on three different types of services, namely, economic, social, and general. Methodology : The autoregressive distributed lag (ARDL) or bounds cointegration technique was used to explore the long-run relationship (cointegration) between total government expenditure and economic growth. The growth impact of government expenditure on economic, social, and general services was investigated using the regression model. Findings : The study found a cointegrating relationship between aggregate government expenditure and economic growth in the erstwhile state of Jammu & Kashmir. The ARDL estimates showed that total government expenditure impacted Jammu & Kashmir’s economic growth positively and significantly in the short and long run. Furthermore, the estimated regression coefficients revealed that government expenditure on social services impacted economic growth positively and significantly. In contrast, government expenditure on economic and general services had a negative but insignificant growth impact. Practical Implications : The study’s findings would assist the policymakers in prioritizing Jammu & Kashmir’s limited resources for developing sectors with the potential to raise economic growth. The study recommended that government expenditure on social services should be increased to enhance growth in the erstwhile state of Jammu & Kashmir. A compositional change in government expenditure favoring social services from general and economic services would stimulate economic growth in the former state of Jammu & Kashmir. The study’s main limitation is that the other potential growth determinants were not considered explanatory/control variables. Originality : The study provided empirical evidence of the growth effect of total government expenditure and its various types in one of India’s least developed, slow-growing, and resource-deficit states (now Union Territory). To the best of my knowledge, the growth impact of government expenditure on three different types of services (economic, social, and general) were not investigated empirically in Jammu & Kashmir for the period from 1981–2020. The study contributed to the scant empirical literature on the growth impact of government expenditure at the sub-national (state level).