Public Sector Development Program (PSDP) spending in Pakistan has been debated in terms of its effectiveness in generating employment. This study aims to explore the relationship between PSDP spending and employment levels by examining its impact on sectoral employment generation. Using a Vector Autoregression (VAR) model, the study finds that the effectiveness of PSDP spending varies across sectors and time periods. The impact of PSDP spending on employment generation is only significant in the short run, with the strongest effects observed in the Water & Power Sector, Construction, and Health Sector. While PSDP spending has a direct impact on short-term employment creation, the role of private investment is also critical in maintaining its impact in the long run. The study suggests that PSDP spending has crowded-in private investment in a few sectors, but overall, there is minimal or no effect of PSDP spending on private investment. PSDP is not productive enough to generate significant employment in Pakistan.

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