The Effect of Fiscal Policy on Economic Growth in China

Olivia, Mopieng (2022) The Effect of Fiscal Policy on Economic Growth in China. [Final Year Project Report] (Unpublished)

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Abstract

This study was carried out to examine the effect of fiscal policy on the economic growth of China from 1991 to 2020 which accounted for 30 years. Economic growth which is indicated by gross domestic product is the dependent variable while government revenues, government expenditures, trade balance and foreign direct investment were chosen as the independent variables. In this study, several methodologies used are unit root test, cointegration test, granger causality and diagnostic tests. Findings shows that all of the fiscal variables have both short and long run relationship with economic growth through Granger causality test. Cointegration test shows that two variables are cointegrated in the long run. Government revenues and expenditures have significant effect on gross domestic product in both short and long run. Foreign direct investment benefited in short run but not in long run relationship while trade balance has no significant impact in the short run but contributed in long run relationship with gross domestic product. Diagnostic test implies that the economic model being used does not contain serial correlation, misspecification, heteroscedasticity and normally distributed. The research objectives has been achieved. Therefore, proper and better policy recommendations has been provided to improve the effectiveness of fiscal policy.

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