An Analysis of Optimal Government Size for Growth: A Case Study of Pakistan

The government size is important for the development of the economy. We estimated optimum government size for growth in Pakistan by using Heerden (2008) methodology for period from 1973 to 2012. The results for the optimal size of the government show that all the variables are significant. The optimal size of the government size or equivalently the optimal size of the public spending is found to be around 17 percent of the GDP. The actual size of the government spending in current years is 18 percent. This finding is very much interesting since it highlights that the current size of government in Pakistan is above the optimum level or size. There is scope of reduction in ratio of total government spending to the GDP in Pakistan.