Dynamic Effects of Energy Sector Public Investment on Sectoral Economic Growth: Experience from Pakistan Economy

Abstract

The successive economic and financial crisis in recent time has reemphasised the importance of fiscal policy. Modern literature has also revisited the debate regarding the effectiveness of fiscal policy in influencing growth. The issue of the impact of public investment on growth is debated in economic literature since seminal work of Solow (1955). The issue is tackled from different angles. Some have used production function approach [Ligthart (2002), Otto and Voss (1994, 1996), Sturm and de Haan (1995) and Wang (2004)]. Then another seminal work by Aschauer (1989) led a series of work on this issue once again in empirical literature (1989a, 1989b). These approaches used single equation method for estimation and captured only the direct effects of public investment on growth. Periera (2000) gave another twist to this literature by highlighting the indirect effects of public investment on output through its effects on other inputs like private investment and employment. Periera’s works (1999, 2000, 2001, 2003, 2005, 2007 and 2011) also contributed empirically to this literature by using vector autoregressive (VAR) technique. This work accounts for both the direct and indirect effects of public investment on growth and also considers the feedback effects of each input to other and finally their effects on output

Public investment efficiency and sectoral economic growth in Pakistan

“…This paper does not provide an answer to this important question, but suggests some future work on the relative efficacy of public investments in social and physical infrastructure. A preliminary analysis of the effects of public investment in energy on sectoral economic growth by Ammad and Ahmed (2013) 3 gives twenty-four sectoral elasticity coefficients from public investments in the energy sector and concludes seven out of the eight elasticities for effects on private capital demonstrate the crowding-in phenomenon. This impressive result shows that public investment in energy has a significant positive effect on private investment.…”

Public spending on human capital formation and economic growth in Pakistan

“…The estimated elasticities of public investment at the aggregated and disaggregated levels, employment elasticity and private investment elasticities were positive, while the output elasticities to employment were negative in four of the seven sectors, namely in the energy, transport, communications and services sectors. Ammad and Ahmed (2014) analysed the impact of public energy sector investment on sectoral economic growth, private investment and employment in Pakistan. The estimation was based on VAR methodology covering the data period 1981-2011.…”