GDP Fluctuations and Private Investment: A Macro Panel Analysis of Selected South Asian Countries

Mohey-ud-din, Ghulam and Siddiqi, Muhammad Wasif (2013): GDP Fluctuations and Private Investment: A Macro Panel Analysis of Selected South Asian Countries. Published in: Pakistan Journal of Commerce and Social Sciences , Vol. 8, No. 2 (July 2014): pp. 485-501.

Abstract

The current study examines the relationship between GDP fluctuations and private investment by using macro panel approach in a panel of five selected South Asian countries (SSAC) including Bangladesh, India, Nepal, Pakistan and Sri Lanka for the period of 1980-2010. The study applies modern non-stationary panel techniques such as cross section dependence test, unit root test under cross sectional dependence, panel cointegration and Group Mean Fully Modified OLS (GM-FMOLS) estimation.

The study finds a long-run co-integrating relationship between GDP fluctuations and private investment in the SSAC. GM-FMOLS estimates show that this link is negative. Thus, the results indicate that GDP fluctuations have a significant negative impact on private investment in SSAC as GDP volatility gives a negative signal to private investors. The study also suggests that GDP volatility may be harmful for private investment in developing countries and negative effect on private investment will also be transferred to growth as the investment is a key determinant of growth. So, the governments of developing countries should equally focus on managing the volatility of GDP to increase private investment along with other measures for creating an investment-friendly environment. Additionally, an increase in private investment will further help in maintenance of stability.

• Item Type: MPRA Paper
• Language: English
• Keywords: GDP volatility, GDP fluctuations, private investment, uncertainty, south Asia, group mean FMOLS, panel co-integration, macro panel
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F44 - International Business Cycles; N - Economic History > N1 - Macroeconomics and Monetary Economics ; Industrial Structure ; Growth ; Fluctuations > N15 - Asia including Middle East

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