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Public-Private Investment and Economic Growth in Pakistan: An Empirical Analysis

Author

Listed:
  • Maryam Bint-e-Ajaz

    (University of AJ&K, Muzaffarabad)

  • Nazima Ellahi

    (Foundation University, Islamabad)

Abstract

This study has attempted to evaluate the inter-relationship among the three macro-variables, namely public and private investment and GDP growth both in the long and short run with reference to Pakistan economy for the period of 1972–2011. We have tried to pinpoint the important determinants of each variable, using the standard econometric techniques. Long run relationship between the variables is specified by using method proposed by Johansen and Juselious (1990). Based on the results of the long-run co-integration parameters short run error correction model is used to estimate the short run relationship between the variables. As expected, the GDP growth has a strong positive relationship with public and private investment and there is a two-way causality between GDP and investment. The public investment is affected by the level of GDP, inflation and exchange rates. Likewise, private investment is affected by inflation and exchange rates, the lending rate, besides the level of GDP. The general negative theoretical relationship between public and private investment is confirmed in the context of Pakistan economy, i.e. public investment exerts a “crowding-out” effect on private investment at large. This is because public investment has primarily been financed in the past through internal and external borrowing. The government revenues collected through taxation has little contribution in promoting public investment.

Suggested Citation

  • Maryam Bint-e-Ajaz & Nazima Ellahi, 2012. "Public-Private Investment and Economic Growth in Pakistan: An Empirical Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(4), pages 61-78.
    • Handle: RePEc:pid:journl:v:51:y:2012:i:4:p:61-78
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    File URL: http://www.pide.org.pk/pdf/PDR/2012/Volume4/61-78.pdf
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    Citations

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    Cited by:

    1. Md. Shabbir Alam & Mustafa Raza Rabbani & Mohammad Rumzi Tausif & Joji Abey, 2021. "Banks’ Performance and Economic Growth in India: A Panel Cointegration Analysis," Economies, MDPI, vol. 9(1), pages 1-13, March.
    2. Nadeem Ul Haque, 2020. "Doing Taxes Better: Analysing the PSDP," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 59(1), pages 139-142.
    3. Noman Riaz & Sabahat Riaz, 2018. "Investment and Economic Growth: A Panel Data Analysis," Asian Development Policy Review, Asian Economic and Social Society, vol. 6(1), pages 20-31, March.
    4. Muhammad Asif & Amjad Amin & Naila Nazir & Kashif Saeed & Sajjad Jan, 2022. "Role of tariffs, imports substitution and investment efficiency in economic growth of Pakistan," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(4), pages 2215-2232, August.
    5. Muhammad Shabbir & Imrab Shaheen & Fahrat Qayyum, 2020. "Domestic Investment in Pakistan: An Analysis Across Different Political Regimes," International Journal of Economics and Financial Issues, Econjournals, vol. 10(5), pages 344-351.
    6. Nadeem Ul Haque & Hanid Mukhtar & Nohman Ishtiaq & John Gray, 2020. "Doing Development Better," PIDE Books, Pakistan Institute of Development Economics, number 2020:3, December.
    7. Nadeem Ul Haque, 2020. "Macroeconomic Research and Policy Making: Processes and Agenda," PIDE-Working Papers 2020:172, Pakistan Institute of Development Economics.
    8. Nilofer, Nilofer & Qayyum, Abdul, 2018. "Impact of Foreign Direct Investment on Growth in Pakistan: The ARDL Approach," MPRA Paper 86961, University Library of Munich, Germany, revised 2018.
    9. Saeed, Muhammad Yasir & Ramzan, Muhammad & Hamid, Kashif, 2020. "Causal and Dynamic Link Between the Banking Sector and Economic Growth in Pakistan," Asian Journal of Applied Economics, Kasetsart University, Center for Applied Economics Research, vol. 27(1).

    More about this item

    Keywords

    Public Investment; Economic Growth;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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