Enigma of Public Assistance to Private Investment through Infrastructure: Evidence from Pakistan

Authors

  • Ayza Shoukat Lecturer in Economics at GCWU, Sialkot and PhD Scholar, University of the Punjab, Pakistan
  • Khalil Ahmad Dean, Social Sciences and Professor of Economics at Government College Women University (GCWU), Sialkot, Pakistan
  • Muhammad Abdullah Assistant Professor of Economics, Govt. Post Graduate College, Sahiwal, Pakistan

DOI:

https://doi.org/10.26710/reads.v3i1.162

Keywords:

Public infrastructure, Private investment, Domestic credit, PCA, Pakistan

Abstract

Purpose: Public physical infrastructure development has fairly large
impacts on private sector investment decisions and through this; it can affect
economic performance (growth). The current study intends to explore the
course in which public infrastructure affects private sector investment in
Pakistan and whether there exist long run equilibrium between them or not.
Time series annual data from 1972 to 2015 has been employed. Instead of
using a single infrastructure indicator, the study has constructed a
multidimensional composite index through principal component analysis
(PCA). Real gross fixed capital formation is used as the proxy of private
sector investment. The long run relationship is determined by Johansen’s
co-integration technique after checking for the order of integration. The
empirical evidence shows that physical infrastructure availability is
positively and significantly affecting private sector investment decisions. In
addition, credit to private sector, per capita GDP, work force and inflation
rate are positively and significantly affecting private investment. Further,
private investment is sensitive to public physical infrastructure availability
not only in long run but also in short run. A statistically significant and
negative ECT (-1) term confirms the long run relationship and convergence
towards equilibrium in case of Pakistan. Findings of the study show that
public physical infrastructure services endorse the private investment both
in the long run and the short run.

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Published

2020-07-25

How to Cite

Ayza Shoukat, Khalil Ahmad, & Muhammad Abdullah. (2020). Enigma of Public Assistance to Private Investment through Infrastructure: Evidence from Pakistan. Review of Economics and Development Studies, 3(1), 1-12. https://doi.org/10.26710/reads.v3i1.162