Determining Factors of Private Investment: Empirical Study of Pakistan

Abstract

There is an ample amount of work on private investment for the cases of both developed and developing economies. Blejer and Khan (1984) study the investment function for developing countries using pooled data of 24 countries for the period 1971-1979. They find credit availability and infrastructural public investments are positively related to private investment. They observe that crowding-out phenomena works in case of non-infrastructural investment. As quoted by Saker (1993), behavior of private investment is quite different in developed and developing economies. Credit availability and government investment appear to be strong boosters of private investment in case of developing economies. Utilizing the Pakistani data set from FY 1974 to FY 1992, Saker (1993) concludes that private investment is positively correlated with output growth, private sector credit availability and government infrastructural investment. Oshikoya (1994) models private investment function for various middle-income and low-income African countries for the period 1971-1988. He finds that real output growth, real exchange rate, credit availability and government infrastructural investment are positively related to domestic private investment in studied African countries. Inflation and external debt servicing add to macroeconomic uncertainty and are, therefore negatively related to private investment.