An Assessment of Fiscal Policy and Long-Term Economic Growth in Selected Countries: Afghanistan, Nepal, and Sri Lanka

Abstract

This study examines the effect of fiscal policy on long-term economic growth in Afghanistan, Nepal, and Sri Lanka over the period 2003 to 2021. Annual panel data from the World Bank World Development Indicators (WDI) are used to investigate how government expenditure, government revenue, public debt, inflation, and gross capital formation influence GDP growth. The study is grounded in Barro’s (1990) endogenous growth model and employs panel unit root tests, pooled ordinary least squares (OLS), and fixed effects estimation. The redundant fixed effects test confirms that the fixed effects model is the appropriate estimation framework. The results reveal that government expenditure has a negative and statistically significant effect on GDP growth, while government revenue and gross capital formation show positive and statistically significant effects. Public debt and inflation do not produce statistically significant effects during the study period. These findings suggest that the quality and efficiency of fiscal management matter more than the scale of public spending alone. The study contributes comparative empirical evidence on three underexplored South Asian economies and offers policy-relevant insights for strengthening fiscal frameworks in developing-country contexts.