Public Investment in Nepal: A Case of Transportation Expenditure
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Department of Economics
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.