Empirical Analysis of Economic Determinants of Private Investment in Pakistan (1975-2015)
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, private investment in Pakistan is effected by many internal and external factors, these factors determined the private investment in Pakistan. For clear understanding of the private investment fluctuation in Pakistan, study on the factors is very important. Therefore, this research is designed to find out major economic determinants which can stimulate or hinder the private investment in Pakistan. In this study for estimation, ARDL approach was applied on time series secondary data (i.e. from 1975 to 2015). The empirical evidence confirms that long run relationship between the variables is present. Furthermore, result confirms that public investment is proportionally related to private investment and has significant relationship. Whereas, inflation rate and exchange rate have significantly negative impact on private investment. Results also recommended that in the short run, the disequilibrium is rapidly adjusted. Based on study results, it is recommended that policy makers develop more effective policies to improve private investment through macroeconomic stability in Pakistan.