Purpose : Public expenditure was traditionally focused on maintaining law and order in society. However, in the last few decades, public expenditure has become a significant instrument of fiscal policy used by the government to boost economic activities. The present paper has evaluated the impact of development expenditure and its components on economic growth in the Haryana state of India.

Methodology : The secondary data used in this study spans the years 1990–1991 to 2019–2020. The impact of development spending on economic growth in Haryana was investigated in this study using the Granger causality test, vector error correction model, and Johansen co-integration technique.

Findings : Long-term results indicate that state development spending favors economic growth, confirming the Keynesian theory. Nonetheless, it is determined that non-development spending has a negligible negative impact on economic growth. Development spending hinders economic growth in the near term. Additionally, it was discovered that spending on social services has a short-term favorable impact on economic growth. On the other hand, spending on non-development and economic services had a negative effect.

Practical Implications : The report recommended that the administration and legislators need to examine how public funds are allocated regularly and implement any necessary adjustments for improved expenditure management.

Originality : The current paper evaluated the impact of development expenditure on the economic growth of Haryana. This is the first study that analyzed the impact of components of development expenditure on economic growth in the state.

1. Abdullah, H., & Maamor, S. (2010). Relationship between national product and Malaysian Government development expenditure: Wagner’s law validity application. International Journal of Business and Management, 5(1), 88–97. http://dx.doi.org/10.5539/ijbm.v5n1p88
2. Agrawal, S., & Nayak, D. (2013). Mangement of public expenditure in the state of Gujarat: An analysis. Indian Journal of Finance, 7(3), 31–44. https://www.indianjournaloffinance.co.in/index.php/IJF/article/view/72134
3. Anantha Ramu, M. R., & Gayithri, K. (2016). Fiscal deficit composition and economic growth relation in India: A time series econometric analysis (MPRA Paper No. 76304). Munich Personal RePEc Archive. https://mpra.ub.uni-muenchen.de/76304/
4. Barro, R. J. (1990). Government spending in a simple model of endogeneous growth. Journal of Political Economy, 98(5), S103–S125. https://doi.org/10.1086/261726
5. Bruce, N., & Turnovsky, S. J. (1999). Budget balance, welfare, and the growth rate: “Dynamic scoring” of the long-run government budget. Journal of Money, Credit and Banking, 31(2), 162–186. https://doi.org/10.2307/2601228
6. Devarajan, S, Swaroop, V., & Zou, H-f. (1996). The composition of public expenditure and economic growth. Journal of Monetary Economics, 37(2), 313–344. https://doi.org/10.1016/S0304-3932(96)90039-2
7. Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74(366a), 427–431. https://doi.org/10.1080/01621459.1979.10482531
8. Ebaid, A., & Bahari, Z. (2019). The nexus between government expenditure and economic growth: Evidence of the Wagner’s Law in Kuwait. Review of Middle East Economics and Finance, 15(1), 20170001. https://doi.org/10.1515/rmeef-2017-0001
9. Ebaidalla, E. M. (2013). Causality between government expenditure and national income: Evidence from Sudan. Journal of Economic Cooperation and Development, 34(4), 61–76.
10. Engle, R. F., & Granger, C. W. J. (1987). Co-integration and error correction: Representation, estimation, and testing. Econometrica, 55(2), 251–276. https://doi.org/10.2307/1913236
11. Gangal, V., & Gupta, H. (2013). Public expenditure and economic growth : A case study of India. Global Journal of Management and Business Studies, 3(2), 191–196.
12. Granger, C. W. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica, 37(3), 422–438. https://doi.org/10.2307/1912791
13. Gujarati, D. N. (2009). Basic econometrics. Tata McGraw-Hill Education.
14. Jiranyakul, K., & Brahmasrene, T. (2007). The relationship between government expenditures and economic growth in Thailand (MPRA Paper No. 88426). Munich Personal RePEc Archive. https://mpra.ub.uni-muenchen.de/88426/
15. Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, 12(2–3), 231–254. https://doi.org/10.1016/0165-1889(88)90041-3
16. Joseph, P. S., & Prarthna, P. (2015). Trend of development and non-development expenditure in the pre-reform and reform periods. ReTeLL, 15. https://www.sjctni.edu/retell/content/2015_%20P.%20Stanly%20Joseph_11-12-2019_8.pdf
17. Kaur, K., & Mishra, O. N. (2017). Causal relationship between government spending and economic growth in Rajsthan: A Toda - Yamamoto approach. Arthshastra Indian Journal of Economics & Research, 6(1), 10–22. http://doi.org/10.17010/aijer/2017/v6i1/111019
18. Keynes, J. M. (1936). The general theory of employment, interest and money. Macmillan.
19. Kumari, D., & Malhotra, N. (2015). Export and economic growth in select South Asian Countries: Causality analysis based on Granger Test & VECM. Arthshastra Indian Journal of Economics & Research, 4(4), 21–36. https://doi.org/10.17010/aijer/2015/v4i4/77668
20. MacKinnon, J. G. (1996). Numerical distribution functions for unit root and cointegration tests. Journal of Applied Econometrics,11, 601–618.
21. MacKinnon, J. G., Haug, A. A., & Michelis, L. (1996). Numerical distribution functions of likelihood ratio tests for cointegration. York University, Department of Economics.
22. Olugbenga, A. O., & Owoye, O. (2007). Public expenditure and economic growth: New evidence from OECD countries. Business and Economic Journal, 32, 1059–1068.
23. Ray, S., & Ray, I. (2012). On the relationship between government’s developmental expenditure and economic growth in India: A cointegration analysis. Advances in Applied Economics and Finance, 1, 86–94.
24. Saxena, S. P., & Bhadauriya, S. (2013). Co-integration analysis of the determinants of inflation in India. Arthshastra Indian Journal of Economics & Research, 2(2), 4–12. https://doi.org/10.17010/aijer/2013/v2i2/54507
25. Seshaiah, S. V., Reddy, T. K., & Sarma, I. R. (2018). General government expenditure and economic growth in India: 1980-81 to 2015-16. Theoretical Economics Letters, 8, 728–740. https://doi.org/10.4236/tel.2018.84050
26. Singh, B. P. (1983). Public expenditure and economic development in India, 1947-48 to 1979-80 : A regional study of the finances of Bihar in the context of a federal structure. Capital Publishing House.
27. Srinivasan, P. (2013). Causality between public expenditure and economic growth: The Indian case. International Journal of Economics and Management, 7(2), 335–347.
28. Usman, M., Fatin, D. F., Barusman, M. Y., Elfaki, F. A. M., & Widiarti. (2017). Application of Vector Error Correction Model (VECM) and impulse response function for analysis data index of farmers’ terms of trade. Indian Journal of Science and Technology, 10(19), 1–14. https://doi.org/10.17485/ijst/2017/v10i19/112258