Department of Economics, Pondicherry University, Pondicherry-605014.
Online published on 10 January, 2012.
The present study focuses the growth implication of composition (current and capital) of government spending in India, using time series data covering period from 1982–83 to 2008–09. To reduce the severe of omitted variable bias, the study employed the aggregate production function approach in the empirical framework. The unit root test results found that the variable under investigation are both stationary and non stationary in nature. The existence of long run co-integration relationship between government spending and real GDP is investigated by means of ARDL (Autoregressive Distributive Lag) approach. More interestingly, the estimated long run coefficient result conforms that there is positive significant link between the government spending and real GDP growth. When isolate the long run growth implication of capital and current spending, the capital (development) spending are positive response to growth, while negative association between current (non-development) spending and growth in the long run. In addition result for estimated short run co-efficient found that capital and current spending are negatively significantly associated with real GDP. Finally the study results did not found Devarajan.et.al (1996) prediction in India. The study results suggest that the government have to allocate more resources to developmental activities, which will helps to achieve the balanced growth and government should allocate efficiently resource to the non development activities.
