A Cointegration Approach to Estimate Private Investment Demand Function of Pakistan
AbstractThe present study estimates the long run private investment function for the period from 1972 to 2011 by using Johansen cointegration approach. The results suggest debt servicing, inflation and private investment to be negatively associated. The study concludes positive impact of GDP growth rate, foreign direct investment, and exchange rate on private investment in Pakistan. The Wald (χ2) Statistics show that GDP, FDI and exchange rate Granger cause private investment. The significance of coefficient of the error correction term confirms the long run causality between explanatory variables and private investment. The pair-wise Granger causality concludes unidirectional causality from private investment to GDP growth, from private investment to foreign direct investment, inflation rate to private investment and from private investment to exchange rate but causality test confirms bidirectional causality between debt servicing and private investment. The paper also suggests policy recommendations.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 49595.
Date of creation: 02 Sep 2013
Date of revision: 02 Sep 2113
Publication status: Published in Asian Journal of Research in Business Economics and Management 3.9(2013): pp. 1-13
Asia; Pakistan; Investment; Debt Servicing; Exchange Rate; Foreign Direct Investment; Inflation; Stationarity; Cointegration; Causality.;
Find related papers by JEL classification:
- E00 - Macroeconomics and Monetary Economics - - General - - - General
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"What Determines Private Investment? The Case of Pakistan,"
Finance Working Papers
22202, East Asian Bureau of Economic Research.
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