Public / Private Investment Linkages: A Multivariate Cointegration Analysis

Abstract

The issue of whether public investment crowds out or crowds in private investment has received considerable attention in the economic literature. Most of the empirical studies that examined the long run stable association between public and private investment have focused on examining this relationship for the developed countries with very little attention on the developing countries. The empirical results of these studies, however, are highly controversial. The existing empirical studies in this area can be divided into three categories. The studies in the first category including Barro (1974), Kormendi (1983), and Feldstein (1982) have examined the empirical implications of the Ricardian equivalence hypothesis (REH). The empirical results of most of the studies in this category were supportive of the REH. Seater (1993) argues that good empirical studies generally provide evidence in support of the REH; however, some studies refute it owing to the lake of econometric accuracy.

Private and Public Investment Linkages: Some Evidence Using Sectoral Level Data

“…The results confirmed the positive relation between PI and PRI. Rashid (2006) examined the association among PI and PRI in Pakistan at the aggregate level by using the Johansen cointegration approach, impulse response functions and variance decompositions. The empirical results suggested the complementary or positive relationship based on the ECM.…”

“…However, Trace statistics is preferred because it produces more accurate results as compared to Maximum Eigen statistics. (Asari et al, 2011;Rashid, 2006). In our analysis, we are using one cointegration vector despite two co-integrating vectors, because the highest Eigenvalue is associated with the first Cointegration equation and it also relates to the stationarity of the variables.…”

“…See, for example, Canh and Phong (2018), Dreger and Reimers (2015), Foye (2014), Gjini and Kukeli (2012), Furceri andSousa (2011), Hatano (2010), Erden and Holcombe (2006), Mitra (2006), Naqvi (2002), Voss (2002), Laopodis (2001), Erenburg (1993), Serven (1996), Bajo-Rubio and Sosvilla-Rivero (1993), and Haque and Montiel (1993). Similarly, most of the studies in Pakistan such as Fatima (2012), Saghir and Khan (2012), Hussain et al (2009), Rashid (2006), Naqvi (2002), andQayyum (2001) have also worked on the aggregate level. Yet a few studies such as Ahmad and Qayyum (2008), Saeed et al (2006) and Looney (1995) have used sector level data but they analyzed only one or two sectors.…”

“…In general, the available empirical evidence also shows mixed results as some studies show crowding in while others indicate crowding out of private investment 4 . In the case of Pakistan, a number of researchers analyze the effect of PI on PRI, e.g., Hussain, Muhammad, Akram, andLal (2009), Saeed, Hyder, Ali, andAhmad (2006), Rashid (2006), Naqvi (2002), Hyder and Qayyum (2001), Looney (1995) reported a crowding-in effect of public capital formation. However, Saghir and Khan (2012), Hyder and Qayyum (2001), Haque and Montiel (1993) found the crowding-out effect in the case of Pakistan.…”

The Efficiency of Entrepreneurship Indicators and Policy Implications in West Africa

“…Export is a catalyst necessary for the overall development of an economy (Abou-Strait, 2005). An increase of this variable in countries is an indication that the economy is entrepreneurial Domestic private investment: there is a growing literature on the link between private investment and economic growth in developing countries due, largely, to the fact that developing countries are fond of formulating sound investment friendly policies to attract foreign investment studies by Khan and Reinhart (1990), Harigan and Mosely (1991), Greenway and Morrissey (1992), Serven and Salimano (992), Gunning (1994), Collier (1995), Akinyosoye, Akande, Akpokodje, and Mbanefoh (1998), Dehn (2000), Lemi and Asefa (2001), Mamatzakis (2001), Rashid (2005), Tawiri (2010). This variable is represented by the Gross fixed capital formation of the, private sector in countries.…”