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What Determines Private Investment? The Case of Pakistan

  • Sajawal Khan


  • Muhammad Arshad Khan

This study is an attempt to analyse the determinants of private investment in Pakistan over the period 1972-2005. The ARDL co-integration approach is employed to check the existence of a long-run relationship as well as short-run dynamics of investment. The results show that most traditional factors have little or no impact on private investment. These results may support the idea that nontraditional factors such as quality of institutions, governance, entrepreneurial skill, etc., are prerequisites for private investment to flourish. We find partial support for the accelerator principle and the crowding-out hypothesis in the case of Pakistan. However, the hypothesis that the volume of the funds is as important as the cost of the funds used in financing private investment and the McKinnon-Shaw hypothesis are not verified in the case of Pakistan.

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Paper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 22202.

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Date of creation: Jan 2007
Date of revision:
Handle: RePEc:eab:financ:22202
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