IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/49595.html
   My bibliography  Save this paper

A Cointegration Approach to Estimate Private Investment Demand Function of Pakistan

Author

Listed:
  • Ali, Sharafat

Abstract

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.

Suggested Citation

  • 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.
  • Handle: RePEc:pra:mprapa:49595
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/49595/1/MPRA_paper_49595.pdf
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    as
    1. 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.
    2. Ahmad, Imtiaz & Qayyum, Abdul, 2008. "Effect of Government Spending and Macro-Economic Uncertainty on Private Investment in Services Sector: Evidence from Pakistan," MPRA Paper 11673, University Library of Munich, Germany.
    3. Kadir KARAGÖZ, 2010. "Determining Factors of Private Investments: An Empirical Analysis for Turkey," Sosyoekonomi Journal, Sosyoekonomi Society, issue 2010-1.
    4. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
    5. 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.
    6. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    7. Sajawal Khan & Muhammad Arshad Khan, 2007. "What Determines Private Investment? The Case of Pakistan," Finance Working Papers 22202, East Asian Bureau of Economic Research.
    8. Shahbaz Nasir & Mahmood Khalid, 2004. "Saving-investment Behaviour in Pakistan: An Empirical Investigation," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 43(4), pages 665-682.
    9. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    10. Javier Andrés & Ignacio Hernando, 1999. "Does Inflation Harm Economic Growth? Evidence from the OECD," NBER Chapters,in: The Costs and Benefits of Price Stability, pages 315-348 National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sharafat, Ali & Hamid, Waqas & Muhammad, Asghar & Raheel Abbas, Kalroo & Muhammad, Ayaz & Mukhtyar, Khan, 2013. "Foreign Capital and Investment in Pakistan: A Cointegration and Causality Analysis," MPRA Paper 55640, University Library of Munich, Germany, revised 28 Apr 2013.
    2. Ali, Sharafat, 2014. "Inflation, Income Inequality and Economic Growth in Pakistan: A Cointegration Analysis," MPRA Paper 53706, University Library of Munich, Germany.

    More about this item

    Keywords

    Asia; Pakistan; Investment; Debt Servicing; Exchange Rate; Foreign Direct Investment; Inflation; Stationarity; Cointegration; Causality.;

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. 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: (Joachim Winter) or (Rebekah McClure). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.