Effectiveness of Government Expenditure Crowding-In or Crowding-Out: Empirical Evidence in Case of Pakistan

Abstract

The purpose of this paper is to find out the long run association between private investment and government expenditure (fiscal policy) in case of Pakistan. Our result shows that current expenditure like defence and debts serving cause crowding out private investment while development expenditure like infrastructure, health and education, cause crowding in private investment. The study used time series annual data of Pakistan economy during the period from 1975 to 2008. Johansen co integration technique is used to find out long run association between variables.