Ahmad, Imtiaz and Qayyum, Abdul (2008): Effect of Government Spending and Macro-Economic Uncertainty on Private Investment in Services Sector: Evidence from Pakistan. Published in: European Journal of Economics, Finance and Administrative Sciences No. 11 (September 2008): pp. 84-96.
Download (150Kb) | Preview
This study examines the effect of government spending and macroeconomic uncertainty on private fixed investment in services sector of the Pakistan for the period from 1972 to 2005. We first investigated time series properties of data then estimated long run model using cointegration technique. The results show that government spending and interest rate affect private investment in services sector in Pakistan. The preferred short-run dynamic investment function indicates that increase in government current spending and interest rate discourages private investment and similarly macroeconomic instability and uncertainty affect the private investment negatively.
|Item Type:||MPRA Paper|
|Original Title:||Effect of Government Spending and Macro-Economic Uncertainty on Private Investment in Services Sector: Evidence from Pakistan|
|English Title:||Effect of Government Spending and Macro-Economic Uncertainty on Private Investment in Services Sector: Evidence from Pakistan|
|Keywords:||Private Investment, Government Expenditure, Macroeconomic uncertainty, Services Sector, Co-integration, Pakistan|
|Subjects:||E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E22 - Capital; Investment; Capacity
|Depositing User:||Abdul Qayyum|
|Date Deposited:||21. Nov 2008 16:47|
|Last Modified:||12. Feb 2013 17:56|
1] Ahmad Imtiaz and Qayyum, Abdul (2008), Do Public Expenditures and Macroeconomic Uncertainty Matter for Private Investment? Evidence from Pakistan, The Pakistan Development Review, Forthcoming issue 2008.
2] Ahmad, Imtiaz (2007), Measuring the Effects of Public Expenditures and Macroeconomic Uncertainty on Private Investment: The Case of Pakistan” Unpublished PhD dissertation, Pakistan Institute of Development Economics, Islamabad, Pakistan.
3] Akkina, Rao Krishna and Celebi Ali Mehmet (2002), “The Determinants of Private Fixed Investment and the Relationship between Public and Private Capital Accumulation in Turkey”, Pakistan Development Review, Volume 41, No.3.
4] Aschaver, David Alan (1989), “Does Public Capital Crowd-out Private Capital”, Journal of Monetary Economics, 24, 171-188.
5] Dickey, D. A. and W. A. Fuller (1979) “Distribution of the Estimators for Auto- regressive Time-series with a Unit Root” Journal of the American Statistical Association, 74:366, 427- 431.
6] ________________________ (1981) “Likelihood Ratio Statistics for Autoregressive Timeseries with a Unit Root” Econometrica 49: 4, 1057-1072.
7] Dixit, K Avinash and Pindyck, S Robert (1994). Investment Under Uncertainty, Princeton university press, Princeton, New Jersey.
8] Dornbush, Rudiger, Fisher, Stanley and Startz Richard (1999), Macroeconomics, Seventh Edition, Mc Graw-Hill International Editions, New York.
9] Engle, R.F and C. W. J. Granger (1987), “Co-integration and Error Correction: Representation, Estimations and Testing”, Econometrica, Vol. 55, No. 2.
10] George, Anita and Morisset, Jacques (1993), “Does Price Uncertainty Really Reduce Private Investment (A small model applied to Chile)”, the international bank for reconstruction and development, Washington DC; World Bank Policy Research Working Paper, WPS 1114.
11] Ghura, Dhaneshwar and Goodwin Barry (2000), “Determinants Of Private Investment: A Cross-Regional Empirical Investigation”, Applied Economics, 32, 1819-1829.
12] Government of Pakistan, Pakistan Economic Survey (various issues), Ministry of Finance, Islamabad.
13] ________________________ National Accounts of Pakistan (product and Expenditure), Federal Bureau of Statistics, Statistics Division, 1987-88,& 2001-2002, Islamabad.
14] Greene, Joshua and Villanueva Delano (1991), “Private Investment in Developing Countries”, IMF Staff Papers: 38(1), 33-58.
15] Hendry, D.F.(1986), “Econometric Modelling With Cointegrated Variables: An overview” Oxford Bulletin of Economics and Statistics, 48:201-212.
16] ___________ and Richard, J (1982), “On The Formulation Of Empirical Models In Dynamic Econometrics”, Journal of Econometrics, 20:3-33.
17] Heng, Kim Tan (1997) “Public capital and crowding-in” The Singapore Economic Review, Vol. 42 No. 2, 1-10.
18] Johansen, S. (1988), “Statistical Analysis of Co-integration Vectors”, Journal of Economic Dynamics and Control, 1988.
19] Johansen, S and K. Juselius, (1990), “Maximum Likelihood Estimation And Inference On Co- Integration With Application To The Demand For Money”, Oxford Bulletin of Economics and Statistics, vol. 52, No. 2.
20] Johansen, S. (1991). “Estimation and Hypothesis Testing of Co integration Vectors in Gausian Vector Autoregressive Models”, Econometrica.
21] Khan Ashfaque H. (1988), “Macroeconomic Policy and Private Investment in Pakistan”, Pakistan Development Review, 27(3): 277-291.
22] Kim, Byung- Hwa and Lim Hyun-Joon (2004), “Investment Behaviour in Korea”, Economic Paper, the Bank of Korea. 95 European Journal of Economics, Finance And Administrative Sciences - Issue 11 (2008)
23] Looney, E. Robert (1997), “Infrastructure and Private Sector Investment in Pakistan”, Journal of Asian Economics, vol. 8, no. 3.
24] Mamatzakis, E. C. (2001) “The Effect of Public Expenditure on Private Investment: An Empirical Application”, The Asymmetric Global Economy; Growth, Investment And Public Policy, Edited by Paraskevopoulos Christos C. Geogakopoulos T. and Michelis L. Toronto, ont. APF press, (www.apfpress.com/book3/pdf-files/9.pdf.)
25] Monadjemi, M.S. (1993), “Fiscal Policy and Private Investment Expenditure: A Study of Australia and the United States”, Applied Economics, 25.
26] Monadjemi, M.S. (1996), “Public expenditure and private investment: A study of OECD countries", University of Kent, Studies in Economics.
27] Naqvi H. Naveed (2002), “Crowding-in or Crowding-out? Modelling the Relationship Between Public and Private Fixed Capital Formation using Co-integration Analysis: The Case of Pakistan 1964-2000” Pakistan Development Review, Volume 41, No.3.
28] Naqvi, Syed Nawab Haider, A.H.Khan and A.M. Ahmad (1993), Macro-economic Framework for the Eighth Five-Year Plan, Islamabad: Pakistan Institute of Development Economics, 1993.
29] Nemat Shafik, (1992), “Modeling Private Investment in Egypt “Journal of Development Economics, 39, 263-277 North- Holland.
30] Oshikaya, Tenitope W.(1994),” Macroeconomic Determinants of Domestic Private Investment in Africa:An Empirical Analysis”, Economic development and cultural change, 573-596.
31] Ouattara, Bazoumana (2005), “Modelling the Long run Determinants of Private Investment in Senegal”, Credit Research Paper No. 04/05; Centre for Research in Economic Development and International Trade, University of Nottingham.
32] Pattillo, Catherine (1998), “Investment, Uncertainty, and Irreversibility in Ghana”, IMF staff paper, vol. 45, no. 3.
33] Pereira, Alfred M. and Sagales Oriol Roca (2001), “Infrastructures and Private Sector Performance in Spain”, Journal of Policy Modeling, 23(4): 371-384.
34] Phillips. R. and P. Perron (1988), “Testing For A Unit Root in Time Series Regression. Biometrika, June, 335-346.
35] Pindyck, Robert S (1991), “Irreversibility, Uncertainty and Investment”, Journal of Economic Literature, September 29(3) pp. 1110—1180.
36] Pindyck, Robert S (1993), “Investment of Uncertain Costs”, Journal of Financial Economics, Aug 34(1), pp 53—76.
37] Qayyum, A. (2002) An Error Correction Model of Demand for Narrowly Defined Money in Pakistan, The Research Journal Social Sciences.
38] Ramirez D. Miguel (1994), “Public and Private Investment in Mexico, 1950-90: An empirical Analysis”, Southern Economic journal, 61 (1), 1-17.
39] Rashid, Abdul (2005), “Public-Private Investment Linkages: A Multivariate Cointegration Analysis”, 21st Annual General Meeting and Conference, December 19-21, 2005. Pakistan Institute of Development Economics, Islamabad- Pakistan
40] Schwert, William G.(1987), “Effect Of Model Specification On Tests For Unit Roots In Macroeconomic Data”, Journal of Monetary Economics, 20, 73-103.North Holland.
41] Serven, Luis and Solimano,Andres (1991), “Adjustment Policies And Investment Performance In Developing Countries: Theory, Country Experiences And Policy Implications”, Washington DC: World Bank, working paper Series No. 606.
42] Serven, Luis and Andres Solimano(1993). “Debt Crisis, Adjustment Policies and Capital Formation in Developing Countries: Where Do We Stand?” World Development, Vol.21.
43] Serven, Luis (1998),” Macro Economic Uncertainity And Private Investment In Developing Countries An Empirical Investigation”, Policy Research Working Paper, 2035, World Bank, Development Research Group, Macro economics and Growth.
44] Serven, Luis (2002), “Real Exchange Rate Uncertainty and Private Investment In Developing Countries”, Policy Research Working Paper, 2823, World Bank, April 2002.
45] Stasavage, David(2001),” Private Investment And Political Uncertainty”, London School of Economics-Suntory Toyota, Development Economics Research Programme, DEDPS no.25, 2001.
46] State Bank of Pakistan, Annual Reports “various issues” Central Directorate State Bank of Pakistan, Karachi.
47] Williams Oral and Darius Reginald (1998), “Private Investment Adjustment with in the ECCB Monetary Union”, Social and Economic Studies, 47(2 and 3): 59-87.
48] Wai, V. Tun and Wang (1982), “Determinnats Of The Private Investment In Developing Countries” The Journal of Development Studies, Vol. 19.
49] Zaidi, Akbar (1999), “Issues in the Economy of Pakistan” Oxford University Press.