Investment spending of a sub-national government in India is equated with its capital expenditure. This article analyses spending by the state government of Orissa. Inadequate provision of physical infrastructure has been a primary cause of poverty and unemployment in the state. Government investment expenditure is unavoidable for the creation of physical infrastructure in a state like Orissa and thereby it works as a feeder for increasing gross state domestic product and employment in private sector of the state economy. For a substantive empirical attestation of the proposition, an econometric exercise has been accomplished. Several tools from time-series econometrics have been used starting with causality and finally vector auto-regression (VAR) modelling. The econometric tools that have been used in this article conform rather than conflict with the conclusion reached at each stage. Such agreement is suggestive of the efficacy of the final results derived from the study.
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