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Determinants of Domestic Private Investment: Test of Alternative Hypotheses for Pakistan

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  • Abdul Waheed

    (Department of Economics & Finance, College of Business Administration, University of Bahrain, Kingdom of Bahrain)

Abstract

This paper analyzes the determinants of domestic private investment in Pakistan using long time series data for the period 1982 to 2012. The conventional variable such as output is not significant in explaining the domestic private investment but the interest rate has significant negative effect on private investment in the long run. The results of the study confirm the validity of crowding in hypothesis and debt overhang hypothesis for Pakistan. This study did not find any support for Mackinnon-Shaw hypothesis. The improvement in law and order condition and existence of democratic political regime in the country has significant positive effect on domestic private investment in the long run. The focus on non-conventional variables could restore investors’ confidence and may result in the recovery of domestic private investment in the country. Key Words:Crowding In, Debt Overhang, Political Regime, Law, Order, Investors' Confidence

Suggested Citation

  • Abdul Waheed, 2015. "Determinants of Domestic Private Investment: Test of Alternative Hypotheses for Pakistan," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 4(2), pages 35-43, April.
  • Handle: RePEc:rbs:ijbrss:v:4:y:2015:i:2:p:35-43
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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.
    2. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
    3. Sajawal Khan & Muhammad Arshad Khan, 2007. "What Determines Private Investment? The Case of Pakistan," Finance Working Papers 22202, East Asian Bureau of Economic Research.
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