The Dynamics of Public Investment in Driving Growth and Employment: Evidence from India
DOI:
https://doi.org/10.65638/2978-8196.2025.01.04Keywords:
Unemployment, Capital Expenditure, Recurring Expenditure, Real GDP, Private Investment, Gross Capital Information, Time-Series Analysis, IndiaAbstract
This study examines the determinants of unemployment in India within a macroeconomic framework that incorporates government expenditure (capital and recurrent), real GDP growth, private investment, and gross capital formation. Utilizing annual data spanning the period 1990–91 to 2023–24, the analysis employs descriptive statistics, stationarity testing, cointegration techniques, and regression modelling to investigate both the short-run and long-run dynamics of unemployment.
The descriptive statistics reveal notable volatility in unemployment compared to the relative stability of capital expenditure, highlighting distinct behavioural patterns across the variables. The Augmented Dickey-Fuller (ADF) test confirms that all variables are integrated of order one, and subsequent residual-based cointegration analysis establishes the existence of a long-term equilibrium relationship among them. Diagnostic checks further validate the robustness of the model, with no evidence of autocorrelation or heteroscedasticity.
The long-run regression results indicate that real GDP growth, capital expenditure, private investment, and gross capital formation exert significant negative effects on unemployment, while recurring expenditure is statistically insignificant. Short-run analysis demonstrates that GDP growth, capital expenditure, and capital formation continue to play critical roles in reducing unemployment, though private investment and recurrent expenditure show no significant short-run effects. The error correction term suggests that approximately 20% of short-run disequilibrium adjusts to the long-run equilibrium within a single period.
The findings underscore the policy relevance of investment-driven growth strategies for reducing unemployment in India. By prioritizing capital expenditure, enhancing gross capital formation, and strengthening private sector participation, policymakers can foster sustainable employment generation. Conversely, reliance on recurrent expenditure alone does not address structural unemployment challenges.
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