Open AccessGovernment Expending, Real Interest Rate, and Economic Growth in Nepal
Author(s) -
Arbind Chaudhary,
Mahesh Acharya
Publication year - 2018
Publication title -
the economic journal of nepal
Language(s) - English
Resource type - Journals
ISSN - 1018-631X
DOI - 10.3126/ejon.v41i3-4.35930
Subject(s) - openness to experience , economics , cointegration , government expenditure , real interest rate , public expenditure , government (linguistics) , interest rate , government spending , econometrics , macroeconomics , monetary economics , public finance , market economy , psychology , social psychology , linguistics , philosophy , welfare
This paper aims to obtain a linear and causal relationship between government expenditure and real interest rate to the economic growth of Nepal for 1975-2015. The applied ARDL cointegration technique yields a long-run association among the variables. Furthermore, the variables: government expenditure, real interest rate, and other control variables-average rainfall and trade openness are established as long-run elements to the national income. The real interest rate has a substitution effect on the Nepalese household sector, hence it hurts the real income. However, trade openness, public expenditure, and average rainfall are recorded as the short-run determinants. Similarly, the study also explores the existence of a bidirectional causal relationship between government expenditure and real income.