FISCAL POLICY AND SECTORAL LABOR PRODUCTIVITY CONVERGENCE IN PAKISTAN: TIME SERIES ANALYSIS
Bushra Jabeen Hashmi  and Tahmina Abid 
ABSTRACT
This study explores the linkages between fiscal policy and sectoral labor productivities with special reference to Pakistan by employing the annual time series data for the time period of 1970 to 2014. Fiscal policy is incorporated in form of three indicators: current expenditures, development expenditures, and fiscal deficit.  [no link developed; a linking statement is needed here] Empirical estimation has been performed by Auto Regressive Distributed Lagged Model. Short run dynamics are analyzed by Error Correction Model. Reliability and stability of the results are checked by the verification of diagnostic tests and CUSUM graphs.  The findings of the study prove that current expenditures increase productivities and converge them whereas development expenditures play no role in the growth process of productivities. Fiscal deficit, on the other hand, diverge the sectoral productivity. It is also found that Openness financial development  positively affects the economy. In case of labor productivity, convergence agriculture employment widens the gap between two productivities but employment in industrial sector is quite opposite. This study suggests that Pakistan is in great need of efficient and productive use of public expenditures And fiscal deficit is one such aspect that is harming the economy very badly and, thus, must be reduced. In short, we need a more balanced and efficient fiscal system along with more open and financially developed economy.
KEY WORDS: Labor Productivity, Fiscal Policy, Convergence, Pakistan, ARDL, JEL Classification: E62, E24, J24.