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Public Investment, Private Investment, and Labor Productivity in Nepal: A Cointegration and VECM Analysis

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  • Pranick Raj Chamlagai
  • Miguel D. Ramirez

Abstract

The main objective of this paper is to analyze the impact of public and private investment on labor productivity in Nepal using time series data from 1991-2021. By employing the Zivot-Andrews single break unit root test and Johansen cointegration analysis, a long-run stable relationship is found among public investment, private investment, and labor productivity. A VECM model is estimated to find that both public and private investment have a positive impact on labor productivity with a more significant and strong impact coming from the private investment in the long run. The nature of labor productivity and public investment is found to be endogenous and that of private investment is found to be weakly exogenous. Additionally, a Granger Causality Test is performed and the result shows that labor productivity and private investment cause public investment. To test the causation from public investment to labor productivity, a Pairwise Granger Causality Test is done and it is found that public investment causes labor productivity only at lags of 4 and 5 which confirms that public investment takes time to impact the labor market conditions. Policy implications are discussed.

Suggested Citation

  • Pranick Raj Chamlagai & Miguel D. Ramirez, 2023. "Public Investment, Private Investment, and Labor Productivity in Nepal: A Cointegration and VECM Analysis," Business and Economic Research, Macrothink Institute, vol. 13(4), pages 74-102, December.
    • Handle: RePEc:mth:ber888:v:13:y:2023:i:4:p:74-102
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    References listed on IDEAS

    as
    1. Topel, Robert, 1999. "Labor markets and economic growth," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 44, pages 2943-2984, Elsevier.
    2. Ramirez, Miguel D., 2009. "Does Public Investment Enhance Labor Productivity Growth in Argentina? A Cointegration Analysis," Working Papers 57, Yale University, Department of Economics.
    3. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    4. repec:eee:labchp:v:3:y:1999:i:pc:p:2943-2984 is not listed on IDEAS
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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