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Do Public Expenditure and Macroeconomic Uncertainty Matter to Private Investment? Evidence from Pakistan

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  • Imtiaz Ahmed

    (Planning Commission of Pakistan)

  • Abdul Qayyum

    (Pakistan Institute of Development Economics, Islamabad)

Abstract

This study examines the role of macroeconomic uncertainty and public expenditure in determining private fixed investment in Pakistan. It is found that individual series are nonstationary. There is a long-run relationship between private fixed investment, public consumption expenditure, public development expenditure, and market activities. It is revealed that public development expenditure stimulates private investment, whereas public consumption expenditure is detrimental to private investment. The preferred dynamic private fixed investment function confirms that in the short run, public development expenditure enhances private investment. Moreover, macroeconomic instability and uncertainty depresses private investment in Pakistan.

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Bibliographic Info

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

Volume (Year): 46 (2007)
Issue (Month): 2 ()
Pages: 145-161

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Handle: RePEc:pid:journl:v:46:y:2007:i:2:p:145-161

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Keywords: Private Investment; Public Expenditure; Macroeconomic Uncertainty; Co-integration; Pakistan;

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References

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  1. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107.
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  7. Looney, Robert E., 1997. "Infrastructure and private sector investment in Pakistan," Journal of Asian Economics, Elsevier, vol. 8(3), pages 393-420.
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Cited by:
  1. Amber Fatima & Abdul Waheed, 2011. "Effects of Macroeconomic Uncertainty on Investment and Economic Growth: Evidence from Pakistan," Transition Studies Review, Springer, vol. 18(1), pages 112-123, September.
  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. Ahmad, Imtiaz & Qayyum, Abdul, 2009. "Role of Public Expenditures and Macroeconomic Uncertainty in Determining Private Investment in Large Scale Manufacturing Sector of Pakistan," MPRA Paper 29268, University Library of Munich, Germany.

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