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Public / Private Investment Linkages: A Multivariate Cointegration Analysis

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  • Abdul Rashid

    (Institute of Business Management, Korangi Creek, Karachi.)

Abstract

The link between public and private investment is investigated using annual data of the period from 1964–65 to 2004-05. The estimates based on structural cointegration approach indicate that both are cointegrated and public investment crowds in private investment. The study then used the Harris, et al. (2003) test to identify whether the existing cointegration vector is stationary or heteroscedastic. The findings of the analysis suggest that private investment can be enhanced by increasing public expenditures in infrastructure. The results of this study support the complementarity hypothesis, which states that stock of public capital crowds in private capital accumulation by increasing the return to private capital in

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Bibliographic Info

Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

Volume (Year): 44 (2005)
Issue (Month): 4 ()
Pages: 805-817

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Handle: RePEc:pid:journl:v:44:y:2005:i:4:p:805-817

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  1. Martin Feldstein, 1980. "Government Deficits and Aggregate Demand," NBER Working Papers 0435, National Bureau of Economic Research, Inc.
  2. David Alan Aschauer, 1988. "Government spending and the "falling rate of profit."," Economic Perspectives, Federal Reserve Bank of Chicago, issue May, pages 11-17.
  3. Evans, Paul & Karras, Georgios, 1994. "Is government capital productive? Evidence from a panel of seven countries," Journal of Macroeconomics, Elsevier, vol. 16(2), pages 271-279.
  4. Kormendi, Roger C, 1983. "Government Debt, Government Spending, and Private Sector Behavior," American Economic Review, American Economic Association, vol. 73(5), pages 994-1010, December.
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  6. Orden, David & Fisher, Lance A, 1993. "Financial Deregulation and the Dynamics of Money, Prices, and Output in New Zealand and Australia," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 273-92, May.
  7. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
  8. David Aschauer, 1988. "Does public capital crowd out private capital?," Staff Memoranda 88-10, Federal Reserve Bank of Chicago.
  9. M. Hashem Pesaran & Ron P. Smith, 1998. "Structural Analysis of Cointegrating VARs," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 471-505, December.
  10. Lynde, Catherine & Richmond, James, 1992. "The Role of Public Capital in Production," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 37-44, February.
  11. Robert J. Barro, 1980. "Output Effects of Government Purchases," NBER Working Papers 0432, National Bureau of Economic Research, Inc.
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  13. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
  14. Seater, John J, 1993. "Ricardian Equivalence," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 142-90, March.
  15. Erenburg, S. J. & Wohar, Mark E., 1995. "Public and private investment: Are there causal linkages?," Journal of Macroeconomics, Elsevier, vol. 17(1), pages 1-30.
  16. Aschauer, David Alan, 1985. "Fiscal Policy and Aggregate Demand," American Economic Review, American Economic Association, vol. 75(1), pages 117-27, March.
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Cited by:
  1. Hossein Kavand & J. Stephen Ferris, 2012. "An Oil-Driven Endogenous Growth Model," Carleton Economic Papers 12-03, Carleton University, Department of Economics.
  2. Inayat Ullah Mangla, 2011. "Reconstructing the Performance of Pakistan’s Political Economy: Another Paradigm," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(Special E), pages 30-70, September.
  3. Ahmad, Imtiaz & Qayyum, Abdul, 2008. "Effect of Government Spending and Macro-Economic Uncertainty on Private Investment in Services Sector: Evidence from Pakistan," MPRA Paper 11673, University Library of Munich, Germany.

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