Public-Private Investment Linkage in Pakistan

The link between public and private investment is investigated using annual data for the period 1964–65 to 2004–05. The estimates based on the structural cointegration approach indicate that both are cointegrated and public investment crowds in private investment. The study then used the McCabe et al. (2003) test to identify whether the existing cointegration vector is stationary or heteroscedastic. The findings of the analysis suggest that private investment can be enhanced by increasing public expenditure in infrastructure. The results of this study support the complementarity hypothesis, which states that stock of public capital crowds in private capital accumulation via increasing the return to private capital in private production technology.