A Cointegration Approach to Estimate Private Investment Demand Function of Pakistan
The present study estimates the long run private investment function for the period from 1972 to 2011 by using Johansen cointegration approach. The results suggest debt servicing, inflation and private investment to be negatively associated. The study concludes positive impact of GDP growth rate, foreign direct investment, and exchange rate on private investment in Pakistan. The Wald (χ2) Statistics show that GDP, FDI and exchange rate Granger cause private investment. The significance of coefficient of the error correction term confirms the long run causality between explanatory variables and private investment. The pair-wise Granger causality concludes unidirectional causality from private investment to GDP growth, from private investment to foreign direct investment, inflation rate to private investment and from private investment to exchange rate but causality test confirms bidirectional causality between debt servicing and private investment. The paper also suggests policy recommendations.
|Date of creation:||02 Sep 2013|
|Date of revision:||02 Sep 2113|
|Publication status:||Published in Asian Journal of Research in Business Economics and Management 3.9(2013): pp. 1-13|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Javier Andrés & Ignacio Hernando, 1999.
"Does Inflation Harm Economic Growth? Evidence from the OECD,"
in: The Costs and Benefits of Price Stability, pages 315-348
National Bureau of Economic Research, Inc.
- Javier Andres & Ignacio Hernando, 1997. "Does Inflation Harm Economic Growth? Evidence for the OECD," NBER Working Papers 6062, National Bureau of Economic Research, Inc.
- Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
- Sajawal Khan & Muhammad Arshad Khan, 2007.
"What Determines Private Investment? The Case of Pakistan,"
Finance Working Papers
22202, East Asian Bureau of Economic Research.
- Sajawal Khan & Muhammad Arshad Khan, 2007. "What Determines Private Investment? The Case of Pakistan," PIDE-Working Papers 2007:36, Pakistan Institute of Development Economics.
- Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
- John J. Heim, 2008. "The Investment Function: Determinants Of Demand For Investment Goods," Rensselaer Working Papers in Economics 0806, Rensselaer Polytechnic Institute, Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:49595. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.