Determinants of Investment in Pakistan in Pakistan (1992-1973)

Abstract

Investment is considered to be an important indicator for economic growth in developing countries. The main purpose of the study was to find the economic determinants of investment for Pakistan by empirical method using data from the year 1972 to 2013. The ARDL approach was used to check short and long run relationship among dependent and explanatory variables. In short run the results showed that the relationship of real interest rate (R) and terrorism (TER) is negative and statistically insignificant. External Debt (EXD) has also negative relationship but it was weakly significant while the relation of Tariff duty (TAR) with dependent variable capital formation (K) was found significant with positive relationship. In long run the result was same as in short run because real interest rate (R) was found with in negative relationship with terrorism and the relation was statistically insignificant. External debt (EXD) had also significant negative relationship with Real Interest Rate (R). Tariff duty was found to have positive and significant relationship with dependent variable. The government should focus on law and order situation in order to overcome terrorist activities. Strong monitory policies needed to be implemented in the country. Revenue and expenditure must be regulated by the authorities concerned.

Keywords: Investment, ARDL Approach, terrorism, External debt, Tariff duty, Real Interest Rate