The Role of Public Expenditure and Employment Opportunity to Stimulate the Development of an Economy: Reference from PMG-ARDL Model

Abstract

The study investigates the influence of public expenditure and employment opportunity in the presence of two control variables [namely foreign direct investment (FDI) and industrialization] in the economy of 23 developed and 38 developing countries across the world during the period 2000–2021. Pooled data of 61 countries is also taken into consideration. The study employs the panel autoregressive distributed lag model for the empirical results. The long-run estimation result implies that government spending adversely influences the economic expansion of entire and developing countries, but the impact is insignificant for the developed countries. This outcome does not validate the view of Wagner and Keynes on the importance of public spending for economic progress. The variable employment opportunity flourishes the economic expansion in the long run for all three types of data sets. Apart from these exogenous variables, impact of foreign investment and industrialization is positive in the long term. Panel causality test documents bidirectional causal relationship of economic development with the government expenditure (GE) and employment opportunity in all types of sample sets. Therefore, effective and liberal policies concerning industrialization and foreign investment are necessary, which will also create employment opportunities and assist in attaining the targets of sustainable development goals.