Empirical analysis of non economic determinants of private investment in Pakistan (1969-2016)

Abstract

Abstract. Private and public investment has own contribution to the growth process of an economy. Private investment is very crucial for economic growth and poverty reduction. Whereas, public investment contributes positively to economic growth through enhancing the productivity of private investment (Ang, 2009). Various empirical studies in developing countries showed that economies led by the private sector achieved better economic performance than the one led by the state. Pakistan has a very sluggish growth in private sector which is a major cause of slow economic growth in the country. So, it is very important to explore the factors which can stimulate the private sector investment in Pakistan. Therefore, this research is designed to find out major non economic determinants which can stimulate or hinder the private investment in Pakistan. Studies on non economic determinants are not sufficient in Pakistan so this study will fill the Gap. In this study for estimation, ARDL approach was applied on time series secondary data (i.e. from 1969 to 2016). The empirical evidence confirms that there exists a long run relationship exist between dependent and independent variables in the model. Furthermore, in the long run, corruption, political instability and violence have significantly negative impact on private investment. Results also suggested that in the short run, the disequilibrium is rapidly adjusted. Based on study results, it is recommended that policy makers develop more effective policies of good governance to improve the private investment.

Keywords. Private investment, Corruption, Political instability, Violence, Time series data, Pakistan.

JEL. D72, D73, E20, E22.