Private, Public and Foreign Investment Nexus in Pakistan: An Empirical Analysis of Crowding-In/Out Effects

Ahsan Abbas and Eatzaz Ahmed



Foreign Direct Investment, Public Investment, Private Domestic Investment, Crowding-in, Crowding-out, VECM, Economic Growth, Pakistan


This study empirically explores the relationship among private domestic, foreign direct and public investments for Pakistan economy using time series data from 1960 to 2015. Simultaneous equations and Vector Error Correction Model (VECM) frameworks are employed to examine the inter relationship among the three categories of investments. The study primarily works out crowding-in/out effect. Notably, the crowding-out effect is observed showing substitutability among the three types of investments. The study also finds that public, private domestic and foreign direct investments have strong positive impacts on economic growth. The findings suggest that better economic environment and favorable investment climate are pre-requisite to marginalize the crowding-out effect.