Abstract
PurposeThis empirical paper aims to examine the impact of interest rate (IR) and political instability (POLINS) on Palestine's domestic private investment.Design/methodology/approachA set of econometric techniques of time series data are adopted to meet the study objectives. They include regression analysis, unit root tests, cointegration test, ARDL & Bound tests, VAR test and Granger causality test.FindingsThe study's primary results complement the neoclassical approach, which states that the IR is negatively associated with domestic private investment. The empirical results reveal that there is no long-run relationship. Also, there is no causality between domestic investment and lending rates. Accordingly, these findings alert policymakers to draw a series of steps to minimize the IR at a minimum to stimulate investment for improved economic growth and development.Practical implicationsThere is still no national currency in Palestine. The Palestinian Monetary Authority (PMA) is advised to set an appropriate ratio of the IR for the currencies-in-circulation in Palestine for boosting investment and economic development.Originality/valueThis paper provides new background information to both policymakers and researchers on the main determinants of investment in Palestine using econometric analysis. Accordingly, this critical issue is required to be examined in Palestine for stimulating investment.
Highlights
This empirical paper aims to examine the impact of interest rate (IR) and political instability (POLINS) on Palestine’s domestic private investment
This paper aims to examine the impact of IR and POLINS on Palestine’s domestic private investment
In the context of this empirical study, time series data were undertaken over the period:, the data were collected from the Palestinian Monetary Authority (PMA) and the Palestine Central Bureau of Statistics (PCBS) (PMA, 2012; and PCBS, 2017)
Summary
The uncertainty associated with an unstable political environment may reduce investment or cause increases in the price level, which leads to a high level of inflation and, as a result, a lower national growth rate Given that, this empirical study tends to find out to what extent the IR and POLINS affect domestic private investment in Palestine from 2008 to 2017. Some studies support the neoclassical approach to POLINS, which is the POLINS is one of the determinants of investment and economic growth that affect them negatively. The model of the study depends on three major variables, the variables that show significance in the regression model They are the domestic investment, GDP and Shekel lending rate. The dependent variable domestic investment is stationary at the first level, so the study variables have a different order of integration. C GDP IR POLINS R-squared Adjusted R-squared S.E. of regression Sum squared resid Log-likelihood F-statistic Prob (F-statistic)
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