Effect of Government Spending and Macro-Economic Uncertainty on Private Investment in Services Sector: Evidence from Pakistan

Abstract

This study examines the effect of government spending and macroeconomic uncertainty on private fixed investment in services sector of the Pakistan for the period from 1972 to 2005. We first investigated time series properties of data then estimated long run model using cointegration technique. The results show that government spending and interest rate affect private investment in services sector in Pakistan. The preferred short-run dynamic investment function indicates that increase in government current spending and interest rate discourages private investment and similarly macroeconomic instability and uncertainty affect the private investment negatively.Private Investment, Government Expenditure, Macroeconomic uncertainty, Services Sector, Co-integration, Pakistan