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Long-run relationship between fiscal policy and economic growth in Asia: Evidence using Pedroni’s Cointegration approach


Abdullah, Hussin and Habibullah, Muzafar Shah and Baharumshah, Ahmad Zubaidi and Tan, Boon Hui (2007) Long-run relationship between fiscal policy and economic growth in Asia: Evidence using Pedroni’s Cointegration approach. Malaysian Management Journal, 11 (1 & 2). pp. 49-67. ISSN 0128-6226

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Abstract

This paper investigates the long-run relationship between fiscal policy and economic growth in Asia between 1982 and 2001 through the application of Pedroni’s Cointegration approach. It examines two different channels through which fiscal policy can affect long-run economic growth in Asian countries. The first channel is when components and aggregate government expenditure affect the real per capita GDP, and the second channel is when the distortionary taxation, budget balance, and aggregate of other fiscal variables affect the real per capita GDP. There is a positive and statistically significant impact of health and education expenditure, aggregate of government expenditure, and aggregate of other fiscal variables on real per capita GDP. It was found that the defence expenditure, distortionary taxation, and budget balance are significantly and negatively related to real per capita GDP. The Pedroni Cointegration result establishes a long-run relationship between fiscal policy and economic growth.

Item Type: Article
Uncontrolled Keywords: Economic growth; fiscal policy; government expenditures; panel cointegration test; FMOLS
Subjects: H Social Sciences > HG Finance
Divisions: College of Arts and Sciences
Depositing User: Dr. Hussin Abdullah
Date Deposited: 12 May 2011 06:00
Last Modified: 12 May 2011 06:00
URI: http://repo.uum.edu.my/id/eprint/2917

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