Threshold Impacts of Public Expenditure on Economic Growth: Insights from India Utilizing Panel Threshold Regression Model
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Abstract
This research examines the impact of public expenditure dynamics on economic growth in India and its six distinct regions (North-Eastern, Northern, Western, Southern, Eastern, and Central) using Hansen's panel threshold regression model. Spanning from 1999–2000 to 2018–19, the analysis reveals significant inter-regional variations in the relationship between public expenditure and economic growth. The Northern, Western, and North-Eastern regions exhibit a singular threshold impact, indicating that exceeding this threshold level may not positively influence economic growth and could lead to fiscal imbalances. In contrast, the Central, Eastern, and Southern regions illustrate no threshold effect. Furthermore, the study identifies that the optimal expenditure threshold is higher for the North-eastern region (81.9%) compared to the Northern (60.5%) and Western regions (50.7%), reflecting higher expenditure requirements. Conversely, when considering India as a whole, no threshold effect is observed, indicating a consistent impact across all regions. The findings underscore the importance of policymakers' attention to optimal expenditure, crucial for addressing long-term budgetary imbalances and fostering inclusive growth.
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