Impact of deficit budget on economic growth in Nepal: An ARDL approach to bound test

Abstract

The thesis entitled Impact of Budget Deficit on Economic Growth: An ARDL Approach to Bound Test has based on descriptive and analytical research design with the main objective of to find the relationship between deficit budget and economic growth in Nepal. All the required information are collected from the secondary sources, particularly from the Ministry of Finance, GoN, and World Bank. The researcher has employed the Gross domestic product as a dependent variable and the budget deficit as an independent variable whereas, current expenditure and gross private capital formation has been applied as a supportive variable. The researcher has found that the nominal and real gross domestic product, government recurrent and capital expenditure, budget deficit and gross private capital formation has an upward trend during the study period. To find the empirical relationship between economic growth and deficit budget, the researcher has applied the ADF test to find the nature (stationary and nonstationary) of

data and found the series has non-stationary. The researcher has employed the ARDL approach to bound test to identified the short-run and longrun relationship between underlying variables. The empirical analysis shows, there

is

a significant positive relationship between gross domestic product and government deficit budget in both the short-run and long-run. And there is also a significant positive relationship between gross domestic product and supportive variable in both the short-run and long-run except for gross private capital formation. Although, there is a significant positive relationship between gross domestic product and gross private capital formation in the long-run.