The Impact of Public Spending on Bangladesh's Economic Growth and Human Capital: An Econometric Analysis

Abstract

This research aimed to determine how the composition of public spending affected human capital and Bangladesh's economic growth between 1979–1980 and 2016–17. Using data from the Bangladesh Economic Review, World Bank Development Indicators, and Bangladesh Bureau of Statistics from 1979–1980 to 2016–17, the study's methodology is based on econometric analysis. This covers the vector error correction method (VECM), the co-integration assessment, expanded Dickey-Fuller tests, and the Granger causality test conducted in pairs. The study investigated how government spending relates to various components, including the growth of the economy and human capital in Bangladesh, private investment, human capital expenditure, government consumption, and government investment. The study employed a VECM to estimate the data after conducting tests for co-integration, stationarity, and causality. Afterwards, the co-integration test was performed, and the results showed that the variables have a single co-integrating equation. The results of the long-run estimation showed that real public investment in the development of human capital promotes growth, actual usage by the government retards growth, and genuine government spending stops contributing to the explanation of economic growth. The economy's growth is positively and significantly impacted by real private investment. The findings showed that none of the government spending components substantially contributes to the short-term explanation of the economy's growth. The findings suggest that public spending and the growth of the economy in Bangladesh have a substantial long-term partnership. Bangladesh's government must be committed to creating a strategy for human resources growth based on a short- and long-term framework.