Public Sector Deficits and Private Investment: A Test of the Crowding- out Hypothesis in Pakistan's Manufacturing Industry
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Authors
Looney, R.E.
Subjects
Advisors
Date of Issue
1995
Date
1995
Publisher
Language
Abstract
The purpose of the analysis below is to assess whether this public sector crowding
out of investment in manufacturing has been a major factor affecting the pattern of
private capital formation in that sector. The results of modified Granger Causality test
suggest that expanded public investment in infrastructure has not played an important
role in stimulating private investment in industry. If anything, it appears that private
investment has stimulated a follow-on expansion in infrastructure. Instead of crowding
in (i.e., a positive feedback effect) additional private investment, infrastructure investment
appears to have led to larger deficits and domestic borrowing. In turn, these financial
developments have dampened the flows of private capital into the important
large-scale manufacturing sector.
On the other hand, financial crowding-out of private investment in large-scale
manufacturing is a distinct possibility; but it may not be a simple, straight-forward
process. The results obtained also suggest that private investment in large-scale manufacturing
has suffered from real crowding-out associated with the government's noninfrastructural
investment programme. Finally, it should be noted that neither financial
nor real crowding-out seems to occur in other areas of private investment. Clearly,
further research should be undertaken to determine why the large-scale manufacturing
sector is unique in this regard.
Type
Article
Description
Pakistan Development Review, Autumn 1995.
Refereed Journal Article
Refereed Journal Article
Series/Report No
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Citation
Looney, R.E., "Public Sector Deficits and Private Investment: A Test of the Crowding- out Hypothesis in Pakistan's Manufacturing Industry,” Pakistan Development Review, Autumn 1995.
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This publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.