Growth, Population, Exports and Wagner's Law: A Case Study of Pakistan (1972-2007)

Authors: T. Hussain, A. Iqbal, M. W. Siddiqi

Abstract:

The objective of this study is to examine the validity of Wagner-s law and relationship between economic growth, population and export for Pakistan. The ARDL Bounds cointegration and ECM are utilized for long and short run equilibrium for the period of 1972-2007. Population has considerable role in an economy and exports are the main source to raise the GDP. With the increase in GDP, the government expenditures may or may not increase. The empirical results indicate that the Wagner-s Law does hold, as economic growth is significantly and positively correlated with government expenditures. However, population and exports have also significant and positive impact on government expenditures both in short and long run. The significant and negative coefficient of error correction term in ECM indicates that after a shock, the long rum equilibrium will again converge towards equilibrium about 70.82 percent within a year.

Keywords: ARDL Cointegration, Growth, Pakistan, Wagner's law.

Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1060820

References:

[1]. Currais, L. (2000). From the Malthusian Regime to the Demographic Transition: Contemporary Research and Beyond, Economica, 7, (3): 75- 101.
[2]. Malthus T.R. (1798). An essay on the principle of population, Oxford World's Classics.
[3]. Thirlwall, A.P.(1994). Growth and Development, Basingstoke: Macmillan Press (p.143)
[4]. Boserup, E. (1965). The Conditions of Agricultural Growth: The Economics of Agrarian Change under Population Pressure, London: George Allen and Unwin Ltd.
[5]. Kelly, A.C. and R. M. Schmidt (1994). Population and Income Change: Recent Evidence, World Bank Paper No. 249, Washington D.C.
[6]. Stockwell, E.(1968). Population and People. Quadrangle Books, Chicago, pp. 185, the USA, Applied Economics Letters, 8, 509-15.
[7]. Henrekson, M.(1993), Wagner-s Law: A Spurious Relationship?-, Public Finance/Finances Publique, 48(2), 406-415.
[8]. Peacock, A.T., and Wiseman, J. (1967). The Growth of Public Expenditure in the United Kingdom, London: George Allen and Unwin.
[9]. Wagner, A. (1883). Three extracts on public finance-, in R. A. Musgrave and A. T. Peacock (eds) (1958), Classics in the Theory of Public Finance. London: Macmillan.
[10]. Edwards, S. (1993). "Trade Liberalization and Growth in Developing Countries" Journal of Development Economics, 39, 31-57.
[11]. Hussain, S. Shahnawaz Malik, S. & Hayat, M . K (2009).Demographic Transition and Economic Growth in Pakistan, European Journal of Scientific Research, 31(3), 491-499.
[12]. Meier, G. and R. Baldwin (1957). Economic Development, John Wiley and Sons, New York.
[13]. Bloom, D. E., and Freeman, R. B. (1988). Economic development and the timining and components of population growth, Journal of Policy Modeling, 10(1), 57-81
[14]. Kelley, A.C. and R. M. Schmidt (1994) Population and income change: Recent evidence, World Bank Discussion Papers no. 249, World Bank: Washington DC.
[15]. Brander, J. A., & Dowrick, S. (1994). The role of fertility and population in economic growth: Empirical results from aggregate cross national data, Journal of Population Economics, 7, 1-25.
[16]. Mankiw, N.G., Romer, D., and Weil, D., (1992). A Contribution to the Empirics of Economic Growth, Quarterly Journal of Economics, 107, 407-37.
[17]. Cincotta, R, Engelman, R. (1997). Nature Displaced: Human Population Trends and Projections and Their Meanings, Population Action International, New York.
[18]. Kelley, A. C. (1988). Economic consequences of population change in the third world, Journal of Economic Literature, 26, 1685-1728.
[19]. Ram, R. (1987). Wagner-s Hypotheses in Time-Series and Cross-Section Perspectives: Evidence from Real Data for 115 Countries, The Review of Economics and Statistics, 69 (1), 194-204.
[20]. Vatter, H.G., and Walker, J.F. (1986). Real Public Sector Employment Growth, Wagner-s Law, and Economic Growth in the United States-, Public Finance/ Finances Publiques, 41(1), 116-36.
[21]. Ganti, S. and Kolluri, B.(1979). Wagner-s law of Public Expenditures: Some Efficient Results for the United States," Public Finance, 34(2), 225-233.
[22]. Masuo, N. (1995). Wagner-s Hypothesis and Displacement Effect in Japan, 1960-1991, Public Finance, 50(1),121-135.
[23]. Ashworth, J. (1994). Spurious in Mexico: A Comment on Wagner-s Law, Public Finance, 49(2), 282-286.
[24]. Murthy, N.R.V.(1993). Further Evidence of Wagner's Law for Mexico: An New Test Specification, Applied-Economics, 36, 2125-35.
[25]. Ahsan, S.M., Kwan, A.C.C., & Sahni, B.S. (1996). Cointegration and Wagner-s Hypothesis: Time Series Evidence for Canada, Applied Economics, 28, 1055-58.
[26]. Hayo, B. (1994). No Further Evidence of Wagner-s Law for Mexico," Public Finance, 49(2), 287-294.
[27]. Biswal, B., Dhawan, U. & Lee, H.Y. (1999). Testing Wagner versus Keynes Using Disaggregated Public Expenditure Data for Canada, Applied Economics, 31, 1283-91.
[28]. Islam, A.M.(2001). Wagner's Law Revisited: Cointegration and Exogeneity Tests for the USA, Applied Economics Letters, 8, 509-15
[29]. Burney, N.A. (2002). Wagner's Hypothesis: Evidence from Kuwait Using Cointegration Tests, Applied Economics, 34, 49-57.
[30]. Wahab, M., (2004). Economic Growth and Government Expenditure: Evidence from a New Test Specification, Applied-Economics, 36, 2125- 35.
[31]. Iyoha, M.A (1995). Traditional and Contemporary Theories of External Trade. In: External Trade and Economic Development in Nigeria, Selected Papers for the 1995 Nigerian Economic Society (NES), Annual Conference Proceedings, 1- 23.
[32]. Thirlwall, A.P., (2000). Trade, Trade Liberalisation and Economic Growth: Theory and Evidence, Economics Research Papers No. 63, The African Development Bank University Press, Oxford.
[33]. Feder, G.(1983). On Exports and Economic Growth, Journal of Development Economics, 12, 59-73.
[34]. Ram, R. (1985). Exports and Economic Growth: Some Additional Evidence, Economic Development and Cultural Change, 33, 415-425
[35]. Sheehey, E. (1990). Exports and Growth: A Flawed Framework, The Journal of Development Studies, 27, 111-116.
[36]. Ngoc, P. M., N. T. Phuong Anh and P.T. Nga (2003). Exports and Long- Run Growth in Vietnam, 1976-2001, ASEAN Economic Bulletin, 20, 1- 25.
[37]. Clarke, R. and C. Kirkpatrick (1992). Trade Policy Reform and Economic Performance in Developing Countries: Assessing the Empirical Evidence, in R. Adhikari, C. K Kirkpartick and J. Weiss (eds), Industrial and Trade Policy Reform in Developing Countries, Manchester: Manchester University Press.
[38]. Akbar, M. and Naqvi, Z. F. (2000). Export Diversification and Structural Dynamic Growth Process, The Case of Pakistan, The Pakistan Development Review, 4, 573-589.
[39]. Dickey, D. and Fuller, W. (1979). Distribution of the Estimators for Autoregressive Time Series with a Unit Root, Journal of the American Statistical Association, 74, 427-431.
[40]. Dickey, D.A., Fuller, W.A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root, Econometrica, 49, 1057- 1072.
[41]. Phillips, P.C.B. and Perron, P. (1988). Testing for Unit Roots in Time Series Regression, Biometrika, 75, 335-346.
[42]. Perron, N.G. (2001). Lag length selection and the construction of unit root tests with good size and power, Econometrica, 69, 1519-1554.
[43]. Kwiatkowski, D., Phillips, P.C., Schmidt, B P & Shin, Y. (1992). Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root, Journal of Econometrics, 54, 159-178.
[44]. Harris, R. and Sollis, R. (2003). Applied Time Series Modeling and Forecasting, West Sussex, John Wiley and Sons Ltd.
[45]. Engle, R.F. and C.W.J. Granger (1987). Cointegration and Error Correction: Representation, Estimation and Testing, Econometrica, 55, 251-276
[46]. Johansen, S. (1991). Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models. Econometrica 59, 1551-1580.
[47]. Johansen, S. (1995). Likelihood-based Inference in Cointegrated Vector Autoregressive Models, Oxford University Press.
[48]. Johansen, S. and K. Juselius (1990). Maximum Likelihood Estimation and Inference on Cointegration with Application for the Demand for Money, Oxford Bulletin of Economics and Statistics, 52, 169-210.
[49]. Pesaran, M. H., and B. Pesaran (1997). Working with Microfit 4.0: Interactive Econometric Analysis. Oxford University Press, Oxford.
[50]. Pesaran, M. H. and Smith, R. P. (1998). Structural Analysis of Cointegrating VARs. Journal of Economic Survey 12: 471-505.
[51]. Pesaran, M. H. and Y. Shin (1999) An Autoregressive Distributed Lag Modelling, Approach to Cointegration Analysis, In Strom, S. (Ed.): Econometrics and Economic Theory in 20th Century: The Ragnar Frisch Centennial Symposium, Chapter 11, Cambridge University Press, Cambridge.
[52]. Laurenceson, J, and Chai, J. (2003) Financial Reform and Economic Development in China. Cheltenham, UK, Edward Elgar.
[53]. Banerjee, A., Dolado, J. Galbraith, J. W.& Hendry, D.F. (1993). Cointegration, Errorcorrection, and the Econometric Analysis of Nonstationary Data Oxford.
[54]. Klein, K. (1976). The Politics of Public Expenditure: American Theory and British Practice, British Journal of Political Science, 6, 401-432.