International Journal of Academic Research in Business and Social Sciences February 2015, Vol. 5, No. 2 ISSN: 2222-6990 231 www.hrmars.com Impact of Expenditure on Economic Growth in Pakistan Faqeer Muhammad 1 Corresponding Author, 1 PhD student at Jiangxi University of Finance and Economics, China Email: fm_economist@hotmail.com Dr. Tongsheng Xu 2 2 Professor at Jiangxi University of Finance and Economics, China Email: Xu3816331@126.com Rehmat Karim 3 3 Lecturer Karakoram International University, Gilgit-Baltistan Email: rehmat@kiu.edu.pk DOI: 10.6007/IJARBSS/v5-i2/1480 URL: http://dx.doi.org/10.6007/IJARBSS/v5-i2/1480 Abstract This study aimed to find out the impact of expenditure on economic growth in Pakistan, using the time series data for the period 1972 to 2013. Secondary data was acquired from World Development indicators and Pakistan Bureau of Statistics. Augmented Dicky Fuller Test (ADF) was applied to check the stationarity of the data. In addition, Johansen Cointegration and Granger Causality tests were applied to empirically investigate the relationship between the variables (expenditure and economic growth) in Pakistan. The results of Cointegration test have indicated that there is no relationship between expenditure and economic growth in the long run. Keywords: Public Expenditure, Cointegration, Wagner Law, economic growth, Causality INTRODUCTION Theoretically the two opposite views about relationship between economic growth and public expenditure are Keynesian and Wagner’s view. According to Wagner (1890) public expenditure rises as a result of rise in real per capita income known as Wagner’s Law. In short the rise in government expenditure is the outcome of economic growth and causality should run from national income to Gov. Expenditure. While Keynesian considers economic growth as an independent variable and economic growth is due to public expenditure. Similarly, Keynes support rising government expenditure for enhancing economic growth (short term & long term growth). Furthermore, in Keynesian view causality should goes from government expenditure to national income.