Rabiul Karim* and Nurun Nahar Akhi
Affiliation: Department of Economics, Asian University of Bangladesh, Dhaka, Bangladesh
Email: [email protected]
Abstract: This study examines the relationship between government spending and economic growth in Bangladesh from 1996-2022. The research uses time series data from mentioned period of the country, focusing on the government’s significant allocation of its annual budget towards infrastructure. Augmented Dickey Fuller test is applied to check data stationary of the taken variables. The Granger causality Wald test is used to confirm the significant impact of government spending on GDP growth. However, the study uses co-integration and error-correction modeling, along with Hsiao’s Granger causality approach, to identify a causal relationship. The study found no co-integration between government spending and economic growth using the Johansen co-integration test. The Granger Causality Test results do not support the effect of economic growth on government spending, but government spending significantly influences economic growth. This supports the Keynesian economic system, where government spending is used as a policy instrument to stimulate economic growth.
Keywords: Government Spending; Consumption; Investment, Causality; Economic Growth.