Public Investment in Nepal: A Case of Transportation Expenditure

Abstract

The rapid growth in public investment in various sectors are assumed after decades of conflict and unstable political situation. The declaration of Federal Republic nation, Nepal, is going to embark on accelerated economic growth. This has somewhat caused concern among policymakers of its implication for economic growth. And the investment of government on transportation infrastructure is the core strategies and called as the infrastructure of infrastructures. The main aim of this study is therefore, to explain the relationship between economic growth and the public investment on transportation sector in Nepal. Primarily, this study has focused on distinction of expenditures and Five Year plans among three systems (Panchayat, Democratic and Republic) showing the trend and structure of expenditure over these systems. The result shows the trend of investment of Government on public expenditure has increased in Republic System. This study used a time series data collected between 1975 and 2016 for further analysis. The statistical and econometric tools has been used for the study. The tools include the unit root test, lag length selection criteria, Johansen cointegration and VAR Granger Causality/ Block Exogeneity to investigate the relationship between public investment expenditure and economic growth in Nepal. Results revealed that the variables are not stationary in their original form but stationary has been found after first difference that is I (1). The obtained regression model has been found to be satisfactory by diagnostic tests (errors are normally distributed, no serial correlation and homoscedastic). The data explained positively significant influence of Transportation Capital Expenditure on Gross Domestic Product. and hence it is contributing to economic growth. Furthermore, the results showed short run unidirectional causation from Transportation Capital Expenditure to Gross Domestic Product.