IDEAS home Printed from https://ideas.repec.org/a/pid/journl/v34y1995i3p277-297.html
   My bibliography  Save this article

Public Sector Deficits and Private Investment: A Test of the Crowding-out Hypothesis in Pakistan's Manufacturing Industry

Author

Listed:
  • Robert E. Looney

    (National Security Affairs, Naval Postgraduate School, Monterey, California, USA.)

Abstract

The purpose of the analysis below is to assess whether this public sector crowding out of investment in manufacturing has been a major factor affecting the pattern of private capital formation in that sector. The results of modified Granger Causality test suggest that expanded public investment in infrastructure has not played an important role in stimulating private investment in industry. If anything, it appears that private investment has stimulated a follow-on expansion in infrastructure. Instead of crowding in (i.e., a positive feedback effect) additional private investment, infrastructure investment appears to have led to larger deficits and domestic borrowing. In turn, these financial developments have dampened the flows of private capital into the important large-scale manufacturing sector. On the other hand, financial crowding-out of private investment in large-scale manufacturing is a distinct possibility; but it may not be a simple, straight-forward process. The results obtained also suggest that private investment in large-scale manufacturing has suffered from real crowding-out associated with the government's noninfrastructural investment programme. Finally, it should be noted that neither financial nor real crowding-out seems to occur in other areas of private investment. Clearly, further research should be undertaken to determine why the large-scale manufacturing sector is unique in this regard.

Suggested Citation

  • Robert E. Looney, 1995. "Public Sector Deficits and Private Investment: A Test of the Crowding-out Hypothesis in Pakistan's Manufacturing Industry," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 34(3), pages 277-297.
    • Handle: RePEc:pid:journl:v:34:y:1995:i:3:p:277-297
    as

    Download full text from publisher

    File URL: http://www.pide.org.pk/pdf/PDR/1995/Volume3/277-297.pdf
    Download Restriction: no
    ---><---

    Citations

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


    Cited by:

    1. Ibrar Hussain & Zahoor Khan & Muhmmad Rafiq, 2017. "Compositional Changes in Public Expenditure and Economic Growth: Time Series Evidence from Pakistan," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 9(1), pages 1-20, March.
    2. Ahmad Bhat Aijaz & Iqbal Khan Javaid & Ahmad Bhat Sajad & Ahmad Parray Waseem, 2023. "Central Bank Independence and its Impact on Fiscal Deficit: Evidence from India," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 33(2), pages 71-94, June.
    3. Ranjan Kumar Mohanty, 2016. "Does Fiscal Deficit Crowd Out Private Corporate Sector Investment In India?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(05), pages 1201-1224, November.
    4. Syed Ammad & Sabihuddin Butt & Shaista Alam, 2012. "Fiscal Responsiveness, Persistence and Discretion: A Case Study of Pakistan," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 15(45), pages 227-244, September.
    5. Sajad Ahmad Bhat & Javed Ahmad Bhat & Taufeeq Ajaz, 2020. "The Public–Private Investment Nexus In India: Evidence From A Policy Simulation Approach," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 65(224), pages 101-128, January –.
    6. Kalim Hyder, 2001. "Crowding-out Hypothesis in a Vector Error Correction Framework: A Case Study of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 40(4), pages 633-650.
    7. Looney, Robert E., 1997. "Infrastructure and private sector investment in Pakistan," Journal of Asian Economics, Elsevier, vol. 8(3), pages 393-420.
    8. Gulzar Ali & Sara Rafiq, 2015. "Motivating Factors of Private Investment in Agriculture Sector of Pakistan," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 5(11), pages 46-58, November.

    More about this item

    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:pid:journl:v:34:y:1995:i:3:p:277-297. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Khurram Iqbal (email available below). General contact details of provider: https://edirc.repec.org/data/pideipk.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.