IMPLICATIONS OF TRADE OPENNESS, FOREIGN AID AND DEMOCRACY FOR WAGNER'S LAW IN PAKISTAN: A Revision and a New Empirical Estimation

Abstract

The current study examines the impact of trade openness, foreign aid and democracy on government expenditure in case of Pakistan. The role of these variables has been well highlighted in the literature in recent decades. Nonetheless, most recent studies of Wagner's law have often neglected the increasing role played by these policy variables. The present study provides an empirical analysis of the long run implications of trade openness, foreign economic assistance and democracy for the fulfillment of Wagner's law in Pakistan. In the empirical contrast we use unit root techniques and ARDL with structural breakpoints. The results obtained leads us to accept the law for Pakistan based on the belief that there are variables other than per capita income which also influence government expenditure growth.