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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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File URL: http://www.pide.org.pk/pdf/PDR/2005/Volume4/805-817.pdf
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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. Feldstein, Martin, 1982. "Government deficits and aggregate demand," Journal of Monetary Economics, Elsevier, vol. 9(1), pages 1-20.
   
   • Martin Feldstein, 1982. "Government Deficits and Aggregate Demand," NBER Working Papers 0435, National Bureau of Economic Research, Inc.
2. Pesaran, M. H. & Smith, Ron P., 1998. "Structural Analysis of Cointegrating VARs," Cambridge Working Papers in Economics 9811, Faculty of Economics, University of Cambridge.
   
   • Pesaran, M Hashem & Smith, Ron P, 1998. " Structural Analysis of Cointegrating VARs," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 471-505, December.
3. Aschauer, David Alan, 1989. "Does public capital crowd out private capital?," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 171-188, September.
   
   • David Aschauer, 1988. "Does public capital crowd out private capital?," Staff Memoranda 88-10, Federal Reserve Bank of Chicago.
4. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
   
   • Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
5. 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.
6. David Alan Aschauer, 1988. "Government spending and the "falling rate of profit."," Economic Perspectives, Federal Reserve Bank of Chicago, issue May, pages 11-17.
7. 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.
8. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "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?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
   
   • Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
   • 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.
9. Barro, Robert J., 1981. "Output Effects of Government Purchases," Scholarly Articles 3451294, Harvard University Department of Economics.
   
   • Barro, Robert J, 1981. "Output Effects of Government Purchases," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1086-1121, December.
   • Robert J. Barro, 1980. "Output Effects of Government Purchases," NBER Working Papers 0432, National Bureau of Economic Research, Inc.
10. Aschauer, David Alan, 1985. "Fiscal Policy and Aggregate Demand," American Economic Review, American Economic Association, vol. 75(1), pages 117-27, March.
11. 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.
12. 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.
13. Seater, John J, 1993. "Ricardian Equivalence," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 142-90, 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. 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.
3. 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.

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