The expenditure-GDP nexus: evidence from a panel of SAARC 7-countries

The paper investigates the casual relationship between government expenditure, GDP and exports for Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka for the period between 1960 and 2010. Using cointegration and Granger causality, the results suggest that there exists bidirectional causality between exports and economic growth in India. For Bangladesh, Maldives, Nepal and Pakistan there is unidirectional causality from exports to economic growth. The unidirectional causality from government expenditure to economic growth is found in Bangladesh and Maldives, whereas the reverse causality is found in Bhutan and Pakistan. For Maldives and Sri Lanka Government expenditure causes exports, whereas for Pakistan export causes government expenditure. The panel analysis finally suggests and existence of unidirectional causality from export to government expenditure and from economic growth to government expenditure.