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

Ghulam Mohey-ud-din and Muhammad Wasif Siddiqi

MPRA Paper from University Library of Munich, Germany

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.

Keywords: GDP volatility; GDP fluctuations; private investment; uncertainty; south Asia; group mean FMOLS; panel co-integration; macro panel (search for similar items in EconPapers)
JEL-codes: E22 E32 F44 N15 (search for similar items in EconPapers)
Date: 2013-07-22, Revised 2014-06-15
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Pakistan Journal of Commerce and Social Sciences 2.8(2014): pp. 485-501

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