It is often argued that government spending contributes to the productive potential of an economy which subsequently plays significant role in determining the national income of a country. On the other hand, a growing government is seen to have harmful effects on the economy because of the sources used to finance government expenditures—taxes, borrowing or printing money. For that reason a significant volume of economic literature has investigated the role of public expenditures in economic growth of a country but is still inconclusive about whether government spending has positive, negative or insignificant effect on economic growth. Advocates of the positive view of public expenditures [for example, Arrow and Kurz (1970) and Barro (1990)] argue that government spending augment private sector productivity which subsequently increases economic growth. This strand of literature argues that public spending generates positive spillovers effects in the economy by providing public goods like health, education, research and physical infrastructure facilities. This may lead to crowd in private investment and eventually will effect economic growth positively. On the contrary, some studies have come up with opposite findings regarding the relationship between government spending and economic growth and raise question about the significance and efficiency of public spending [Landau (1983), Abu-Bader et al. (2003), Ghani and Din (2006)]. Supervisor:- Dr. Attiya Yasmin Javid