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The Determinants of Private Investment and the Relationship between Public and Private Investment in Pakistan

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  • Majeed, Muhammad Tariq
  • Khan, Saniya

Abstract

This paper analyzes the factors that play an important role in determining private investment in Pakistan using annual data for the period 1970-2006. The econometric tests undertaken support the view that private sector output, net capital inflows to the private sector, total sources of funds and past capital stock have all been significant determinants of private investment rates, while changes in the volume of bank credit also has a positive effect. The empirical evidence suggests that if the sector is squeezed for credit then there will be a reduction in the level of private investment with adverse impacts on the long-term productive capacity of the private sector. The results suggest that overall relationship of public and private investment is one of substitutability. It means there is a “crowding out” effect indicating that most of the physical and financial resources are utilized by public sector, thereby exerts a negative influence on private investment.

Suggested Citation

  • Majeed, Muhammad Tariq & Khan, Saniya, 2008. "The Determinants of Private Investment and the Relationship between Public and Private Investment in Pakistan," MPRA Paper 49301, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:49301
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    References listed on IDEAS

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    1. Joshua Greene & Delano Villanueva, 1991. "Private Investment in Developing Countries: An Empirical Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 33-58, March.
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    3. Naveed H. Naqvi, 2002. "Crowding-in or Crowding-out? Modelling the Relationship between Public and Private Fixed Capital Formation Using Co-integration Analysis: The Case of Pakistan 1964-2000," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 41(3), pages 255-276.
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    Cited by:

    1. Muhammad Farhan Ashraf & Muhammad Mehran Latif & Hina Kanwal, 2019. "Factors Inducing the Investment and Saving Behaviour in Pakistan," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 1(2), pages 82-88, December.
    2. Qazi Muhammad Adnan Hye & Wee-Yeap Lau, 2018. "Does Financial and Trade liberalization Drive Private Investment in Pakistan?," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 5(1), pages 112-120.
    3. Saira Batool & Areeba Amer, 2021. "Agriculture Sector in Pakistan (A Historic Analysis)," International Journal of Agriculture & Sustainable Development, 50sea, vol. 3(3), pages 51-56, August.
    4. Bilge Kağan ÖZDEMİR & Ebrima GOMEZ, 2020. "The Impact Of Domestic Debt On Private Investment In The Gambia: An Ardl Approach," Journal of Research in Economics, Politics & Finance, Ersan ERSOY, vol. 5(1), pages 111-127.

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    More about this item

    Keywords

    Private Investment; Public Investment; Crowding out;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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