A Cointegration Approach to Estimate Private Investment Demand Function of Pakistan

Sharafat Ali

MPRA Paper from University Library of Munich, Germany

Abstract: The present study estimates the long run private investment function for the period from 1972 to 2011 by using Johansen cointegration approach. The results suggest debt servicing, inflation and private investment to be negatively associated. The study concludes positive impact of GDP growth rate, foreign direct investment, and exchange rate on private investment in Pakistan. The Wald (χ2) Statistics show that GDP, FDI and exchange rate Granger cause private investment. The significance of coefficient of the error correction term confirms the long run causality between explanatory variables and private investment. The pair-wise Granger causality concludes unidirectional causality from private investment to GDP growth, from private investment to foreign direct investment, inflation rate to private investment and from private investment to exchange rate but causality test confirms bidirectional causality between debt servicing and private investment. The paper also suggests policy recommendations.

Keywords: Asia; Pakistan; Investment; Debt Servicing; Exchange Rate; Foreign Direct Investment; Inflation; Stationarity; Cointegration; Causality. (search for similar items in EconPapers)
JEL-codes: E00 (search for similar items in EconPapers)
Date: 2013-09-02, Revised 2113-09-02
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Citations: View citations in EconPapers (2)

Published in Asian Journal of Research in Business Economics and Management 3.9(2013): pp. 1-13

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