Impact of Government Spending on Private Consumption Using ARDL Approach

Abstract

This study investigates the impact of government spending on private consumption a case study of China. We used Autoregressive Distributed Lag (ARDL) approach to estimate the long and short run effects of the model using annual data from 1985 to 2013. The results of the study revealed that government spending have positive impact on private consumption. Therefore, government spending is a very good instrument to boost economy and encourage aggregate demand in China during recession. The negative and significant Error Correction Term (ECT) suggests that Chinese economy will adjust relatively quickly in response to an external shock to the overall development.