The Fiscal Impacts of Privatization Reforms in Pakistan: A Dynamic Analysis

Abstract

There are various reasons of privatization attraction for the regime of the developing nations. These revenues from the sale of state owned enterprises can demonstrate a possible resolution to persistent deficits. The study initiates a fresh avenue of research by evaluating the fiscal impact of privatization receipt. The factors that leads to persistent fiscal budget deficits and explain how empirical research on the fiscal impact of privatization would be a legitimate extension of this inquiry. For the long run and short run analysis Co-integration and VECM techniques are used. In present study it is found that there exist short run and long run relation among the macroeconomic variables, but the result of short run suggest that though there exists a short run relation the effects are not positive. Moreover, in the long run privatization caters only a minimal proportion of government expenditure. While Gross Domestic Product, Gross Fixed Capital Formation, GDP per Capita, Real Effective Exchange Rate, Unemployment have a positive and significant impact on government in the long run. Macroeconomic instability shows a negative impact in the long run. In short run the Gross Domestic Product, Gross Fixed Capital Formation and Real Effective Exchange Rate have significant positive impact while macroeconomic instability, GDP per Capita and Unemployment have no immediate impact in the short run. The study also confirms that there exist a causal relationship between Privatization and Government Expenditure