Patterns of causality between public expenditure and growth of money and national income in India

Abstract

We use the argument of Lutkepohl (1982), and Ahsan, Kwan, and Sahni (1992) to model causal relation between public expenditure and national income growth in India during the period 1951-1989. The "omitted" variable considered is the rate of growth of Ml. It is revealed that the pattern of causality is affected by the inclusion of the "omitted" variable. Several empirical hypotheses of significance with regard to these macro/fiscal variables are tested. Implications for policy are also drawn.