Analyzing the Link Between Government Budget Expenditures and Economic Growth: A Case Study of Uzbekistan’s Experience

Abstract

Purpose: This study aims to examine the relationship between government spending and economic growth in Uzbekistan using quarterly data from 2000 to 2020. Specifically, it investigates the short and long-term causal links between GDP and government budget expenditures through the utilization of the Engle-Granger Cointegration and Error Correction Model (ECM).   Theoretical framework: The theoretical framework of this study draws on the principles of Keynesian economics and Wagner's Law. Keynesian economics posits that increased government spending can stimulate economic growth, particularly during periods of economic downturns. In the context of this study, it suggests that higher government budget expenditures contribute to GDP growth in Uzbekistan. Wagner's Law, on the other hand, postulates that as an economy expands, the functions and size of the government also grow.   Methodology: The study utilizes the Engle-Granger Cointegration and ECM to analyze the relationship between GDP and government budget expenditures in Uzbekistan. Statistical tests, such as p-values, R-squared, adjusted R-squared, and Durbin-Watson statistic, are employed to evaluate the significance and goodness-of-fit of the models.   Findings: The results indicate a positive correlation between government spending and GDP. A 1% increase in government budget expenditures corresponds to a 0.50% increase in GDP, while holding other factors constant. The relationship is statistically significant at the 1% level. The ECM reveals significant error correction terms for both variables, suggesting a correction towards the long-term equilibrium.   Research, Practical & Social implications: These findings imply that increased government spending can contribute to economic growth in Uzbekistan. The results support the principles of Keynesian economics, which advocate for fiscal stimulus during economic downturns. Additionally, the study aligns with Wagner's Law, indicating that as the economy grows, the size and functions of the government also expand. Policymakers can utilize these findings to inform decisions regarding government budget allocations and economic development strategies.   Originality/Value: This study provides empirical evidence on the relationship between government budget expenditures and economic growth in Uzbekistan. The utilization of the Engle-Granger Cointegration and ECM models enhances the understanding of the dynamics and long-term equilibrium between GDP and government spending. The findings contribute to the existing literature on fiscal policy and economic growth in emerging economies.