Fiscal deficit and economic growth in Uzbekistan: Evidence from an ARDL model with structural reform considerations

Type of the article: Research ArticleAbstractThis study examines the short-run and long-run relationship between fiscal deficit and economic growth in Uzbekistan over 2000–2025, with explicit attention to the structural reform dynamics introduced by the 2017 economic liberalization program. To achieve this aim, the Autoregressive Distributed Lag (ARDL) bounds testing approach is combined with the Zivot-Andrews endogenous structural break test. The bounds test confirms a stable cointegrating relationship (F = 8.947, exceeding the 1% upper bound), thereby fulfilling the study's aim of establishing a long-run equilibrium link between fiscal deficit and growth. The results show that the fiscal deficit exerts a positive and statistically significant effect on growth in both the short (β = 0.178) and the long run (β = 0.242): a one-percentage-point increase in the deficit raises long-run growth by about 0.24 percentage points. The 2017 reform dummy carries a significant negative coefficient (β = –6.196), quantifying the short-term adjustment cost of the transition, while the Zivot-Andrews test independently dates structural breaks in the exchange rate and domestic credit to 2017. Among the controls, domestic credit raises growth (β = 0.146), whereas inflation (β = –0.189) and exchange rate depreciation (β = –1.365) reduce it; the error-correction term (ω = –1.862) indicates rapid convergence to equilibrium. These findings confirm all research hypotheses and support the Keynesian view, while demonstrating that fiscal policy effectiveness in transition economies is conditional on accompanying structural reforms, macroeconomic stability, and financial development.

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