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Effect of Government Spending and Macro-Economic Uncertainty on Private Investment in Services Sector: Evidence from Pakistan

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Author Info
Ahmad, Imtiaz
Qayyum, Abdul

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Abstract

This study examines the effect of government spending and macroeconomic uncertainty on private fixed investment in services sector of the Pakistan for the period from 1972 to 2005. We first investigated time series properties of data then estimated long run model using cointegration technique. The results show that government spending and interest rate affect private investment in services sector in Pakistan. The preferred short-run dynamic investment function indicates that increase in government current spending and interest rate discourages private investment and similarly macroeconomic instability and uncertainty affect the private investment negatively.

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File URL: http://mpra.ub.uni-muenchen.de/11673/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11673.

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Date of creation: Aug 2008
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Handle: RePEc:pra:mprapa:11673

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Related research
Keywords: Private Investment; Government Expenditure; Macroeconomic uncertainty; Services Sector; Co-integration; Pakistan;

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Find related papers by JEL classification:
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity

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  1. Ghura, Dhaneshwar & Goodwin, Barry, 2000. "Determinants of Private Investment: A Cross-Regional Empirical Investigation," Applied Economics, Taylor and Francis Journals, vol. 32(14), pages 1819-29, November. [Downloadable!] (restricted)
  2. George, Anita & Morisset, Jacques, 1995. "Does Price Uncertainty Really Reduce Private Investment? A Small Model Applied to Chile," Applied Economics, Taylor and Francis Journals, vol. 27(6), pages 517-22, June.
    Other versions:
  3. Pindyck, Robert S., 1993. "Investments of uncertain cost," Journal of Financial Economics, Elsevier, vol. 34(1), pages 53-76, August. [Downloadable!] (restricted)
    Other versions:
  4. Looney, Robert E., 1997. "Infrastructure and private sector investment in Pakistan," Journal of Asian Economics, Elsevier, vol. 8(3), pages 393-420. [Downloadable!] (restricted)
  5. Mehdi S. Monadjemi, 1996. "Public Expenditure And Private Investment: A Study of Three OECD Countries," Studies in Economics 9601, Department of Economics, University of Kent.
  6. Schwert, G. William, 1987. "Effects of model specification on tests for unit roots in macroeconomic data," Journal of Monetary Economics, Elsevier, vol. 20(1), pages 73-103, July. [Downloadable!] (restricted)
  7. Serven, Luis, 2002. "Real exchange rate uncertainty and private investment in developing countries," Policy Research Working Paper Series 2823, The World Bank. [Downloadable!]
  8. B Ouattara, 2004. "Modelling the Long Run Determinants of Private Investment in Senegal," The School of Economics Discussion Paper Series 0413, Economics, The University of Manchester. [Downloadable!]
  9. Hendry, David F. & Richard, Jean-Francois, 1982. "On the formulation of empirical models in dynamic econometrics," Journal of Econometrics, Elsevier, vol. 20(1), pages 3-33, October. [Downloadable!] (restricted)
  10. David Stasavage, 2000. "Private Investment and Political Uncertainty," STICERD - Development Economics Papers 25, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
  11. Imtiaz Ahmed & Abdul Qayyum, 2007. "Do Public Expenditure and Macroeconomic Uncertainty Matter to Private Investment? Evidence from Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 46(2), pages 145-161. [Downloadable!]
  12. Pereira, Alfred M. & Roca-Sagales, Oriol, 2001. "Infrastructures and private sector performance in Spain," Journal of Policy Modeling, Elsevier, vol. 23(4), pages 371-384, May. [Downloadable!] (restricted)
  13. Pindyck, Robert S., 1990. "Irreversibility, uncertainty, and investment," Working papers 3137-90., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
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  14. Serven, Luis & Solimano, Andres, 1993. "Debt crisis, adjustment policies and capital formation in developing countries: Where do we stand?," World Development, Elsevier, vol. 21(1), pages 127-140, January. [Downloadable!] (restricted)
  15. Monadjemi, Mehdi S, 1993. "Fiscal Policy and Private Investment Expenditure: A Study of Australia and the United States," Applied Economics, Taylor and Francis Journals, vol. 25(2), pages 143-48, February.
  16. Serven, Luis & Solimano, Andres, 1991. "Adjustment policies and investment performance in developing countries : theory, country experiences, and policy implications," Policy Research Working Paper Series 606, The World Bank. [Downloadable!]
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