National Savings, Investment and Institutional Freedoms in Pakistan

Institutional freedom is considered one of the most important factor in the debate of economic growth of nations. Most prominent kinds of institutional freedom which actively take part in economic prosperity are democracy (political liberalization) and economic freedom (business liberalization). In the history of economic growth savings and investment issues have their unique importance. More or less economists of all schools of thought agreed on this point of view that savings and investment directly and indirectly play vital role in economic growth of nations. This study presents the overview that either both democracy and economic freedom are really important factors for national savings and investment in Pakistan. For empirical investigation this study measured the indexes of level of economic freedom and democracy on annual basis. “Alliance for Restoration of Democracy in Asia” (ARDA) and “The Fraser Institute Canada” methodologies are adopted for measurement of democracy and economic freedom in Pakistan respectively. For study period 1970 to 2007 this study constructed the data set of 38 annual observations. The most recent econometric technique ARDL approach is employed for examination of long run and short run relationships between targeted variables. On empirically grounds it is divulged that during study period democracy in Pakistan did not contribute remarkably toward national saving and investment proxies. According to results, democracy affected the national savings and investment in Pakistan positively but insignificantly. Economic freedom the other core explanatory variable is considered more conducive for investment while it hampered the national savings remarkably in Pakistan during study period.