Abstract
This study has been conducted to find out the impact of political and economic variables on domestic investment of Pakistan. For this purpose secondary data for 35 years has been collected according to the variables of this study. To analyze the data ARDL bound test procedure has been applied to assess long run relationshipand ARDL based ECM applied to check short run associationof political and economic variables on domestic investment whereas augmented dickey fuller test is applied to check stationary of data. Our findings declared that gross domestic product, foreign direct investment, foreign debt and domestic credit to private sector positively affect domestic investment in Pakistan whereas interest rate, foreign aid, inflation and non-democratic government have negative relation with domestic investment in long run. Dictatorial dummy and credit to private sector has insignificant influence in long run whereas in short run, non democratic dummy influences domestic investment significantly. Results are accordant with classical and Keynesian views. Overall it is concluded that domestic investment decisions have no concern to regime type but political and economic stability and law and order conditions are necessary to promote domestic investment.
Highlights
Investment is an important factor of economic growth; it is used to scrutinize the country’s economic performance
Time series data of GDP, foreign direct investment (FDI), inflation, interest rate, external debt, foreign aid, credit to private sector and domestic investment is being used in this research work, ranged from 1980 to 2014
In this study secondary data (1980-2014) of Pakistan for GDP, domestic investment, interest rate, FDI, external debt, credit to private sector, foreign aid and inflation is used.Augmented Dickey Fuller test is applied to check stationary of data, ARDL bound approach is employed to check long run association between explanatory and explained variables, ARDL based error correction method is used to check the short run relation
Summary
Investment is an important factor of economic growth; it is used to scrutinize the country’s economic performance. Due to the separation of Bangladesh and political uncertainty, investors moved their capital to foreign countries He nationalized the institutions and industry, which has worst affect on private investment (Monshipouri and Samuel, 1995). The economic growth (GDP) was 5.97% per annum during his span He adopted liberalized policies (reduced trade barriers), privatized industries and gave incentives to local and foreigner investors, which restore investor’s confidence. Under his government domestic investment was 19.3% of GDP (Hashim, 2013). During 1990s private domestic investment recorded 9.1% of GDP (GOP, 2012-13). To evaluate theexplanatory significance of political and economic variables in making investment decisions
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