Privatization of Public Enterprises in Pakistan: Macroeconomic Impacts on Private Indus¬trial Investment

Robert E. Looney ()
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Robert E. Looney: Naval Postgraduate School, Montery, Postal: 1 University Circle, Monterey, CA 93943, http://www.nps.edu/

Economia Internazionale / International Economics, 1996, vol. 49, issue 3, 385-400

Abstract: The purpose of this paper is to examine whether the privatization of public sector manufacturing in Pakistan would reduce the potential for crowding out of private investment in manufacturing. A major issue is the effect on private investment of increased fiscal deficits and expanded government domestic borrowing. Using causality analysis our main finding is that as long as the government’s budgetary priorities remain unchanged, privatization of manufacturing or other semi-public organizations will not in itself reduce the size of the fiscal deficit. To do• this other types of public expenditures must contract. Ironically, the most productive way to reduce the effects of crowding out of private sector investment in manufacturing is to contract general government investment in infrastructure an allocation which the government has traditionally counted on as providing a stimulus to private sector investment in manufacturing.

Date: 1996
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