Challenging trickle‐down approach : Modelling and simulation of public expenditure and human development – the case of Pakistan

Purpose – Successive governments in Pakistan have been pursuing pro‐growth trickle‐down approach with the proclaimed intent that benefits of growth will ultimately reach all. The purpose of this paper is to challenge this intent with a systemic model and suggest alternative policy. Design/methodology/approach – This paper develops a model of system structure of public expenditure and human development (HD) using System Dynamics method. The theoretical and empirical literature provides the conceptual framework to model the paradoxical case of Pakistan. Findings – The simulation results show that high economic growth may not result into better HD indicators. This is in conflict with the trickle‐down approach of economic growth which advocates the economically disadvantaged segments of the society ultimately reap the long‐term benefits of economic growth. On the contrary, high spending on education and health will yield better results even if the economy grows at a relatively lower rate. This paper suggests that the demographic and human development of Pakistan has strong linkages with the public expenditure on HD and weak linkages with the economic growth. Practical implications – The paper suggests a threshold of 3 percent of sustained economic growth rate as a pre‐requisite to plan for HD in Pakistan. With that in place the government should adhere to high public spending on education and health for HD which is not only an end in itself but is also a must for sustainable development. Research limitations/implications – This paper assumes exogenous gross domestic product (GDP). The future research requires relaxing of exogenous assumption for GDP to make it endogenous to reflect two‐way feedback relationship of HD and GDP in the long run. Moreover, it will be useful to model the role of HD to promote equitable income distribution in this context where asymmetric income distribution is especially pronounced and may have causal links with HD. Originality/value – A detailed and robust population cohorts' structure that provides demographic development over time is a unique feature of the model developed for this paper. This is a conscious effort to reflect the causal links of economic growth and HD that involve nonlinearity and delays.