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What Determines Private Investment? The Case of Pakistan

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  • Sajawal Khan

    (PIDE)

  • Muhammad Arshad Khan

Abstract

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.

Suggested Citation

  • Sajawal Khan & Muhammad Arshad Khan, 2007. "What Determines Private Investment? The Case of Pakistan," Finance Working Papers 22202, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:financ:22202
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Waqas Ahmed & Farooq Pasha & Sajawal Khan & Muhammad Rehman, 2012. "Pakistan Economy DSGE Model with Informality," SBP Working Paper Series 47, State Bank of Pakistan, Research Department.
    2. Afia Malik, 2013. "Private Investment And Fiscal Policy In Pakistan," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 38(1), pages 83-109, March.
    3. Kadir KARAGÖZ, 2010. "Determining Factors of Private Investments: An Empirical Analysis for Turkey," Sosyoekonomi Journal, Sosyoekonomi Society.
    4. Henna Ahsan & Zainab Iftikhar & M. Ali Kemal, 2011. "The Determinants of Food Prices: A Case Study of Pakistan," PIDE-Working Papers 2011:76, Pakistan Institute of Development Economics.
    5. Inayat Ullah Mangla, 2011. "Reconstructing the Performance of Pakistan’s Political Economy: Another Paradigm," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, pages 30-70.
    6. Ali, Sharafat, 2013. "A Cointegration Approach to Estimate Private Investment Demand Function of Pakistan," MPRA Paper 49595, University Library of Munich, Germany, revised 02 Sep 2113.

    More about this item

    Keywords

    Private Investment; Growth; Crowding Out; co-integration;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • Z10 - Other Special Topics - - Cultural Economics - - - General
    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General

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