Public and Private Infrastructure Investment and Economic Growth in Pakistan: An Aggregate and Disaggregate Analysis

Abstract

This study investigates the relationship between infrastructure investment and economic growth at the aggregate and sectoral levels, namely, the industrial, agriculture, and services sectors for Pakistan over the period from 1972 to 2015. In contrast to earlier literature, we make a comparative analysis of the different composition of infrastructure investments, including public versus private investment and infrastructure investment in sub-sectors such as in power, roads, and telecommunication sectors. The long-run relationship is estimated using fully modified ordinary least squares (FMOLS) to address the problem of reverse causality. The main conclusion of this study is that both public and private infrastructure investments have positive but different effects on economic growth. In other words, the marginal productivities of private and public infrastructure investments differ across the different sectors of the economy. In most of the cases, public infrastructure investment has a larger impact on economic growth than private infrastructure investment. Two important policy implications emerge from this study, as follows: (1) The different elasticity estimates can be used by policy makers to quantify the impact of policies targeted at the specific sector and (2) the government should develop an enabled policy environment to attract private investment, with the consideration of structural characteristics of the various sectors. The involvement of the private sector in the provision of infrastructure would help to control the tight budgetary situation.

China-Pakistan Economic Corridor and Its Influence on Perceived Economic and Social Goals: Implications for Social Policy Makers

“…This inflow will, in turn, spur economic growth and propensity of Pakistan economy [12]. For instance, Javid [33] claimed that CPEC has increased investment in both public and private infrastructure that is very crucial for economic growth. CPEC has significantly improved investment in the different industrial sectors including energy, road and oil and gas etc.…”

PRODAMAS and the Effect on Infrastructure Growth

“…Many previous research about government development program shows that development program can be one of the factor to lead economic growth. Javid shows empirical evidence that public investment in infrastructure can have strong impact on private capital information by providing the necessary infrastructure such as roads, electricity, telecommunication, health and education [1]. Other research by Tsaurai and Ndou shows that the interaction between infrastructure and human capital development improved economic growth in transitional economies, in line with theoretical and empirical predictions.…”

“…Furthermore, Infrastructure development enlarges production capacity by creating an investmentconducive environment for private investors. The cost of production for the private sector is reduced due to the intensive use of infrastructure services, hence enhancing the durability of private capital [1].…”

Pakistan’s Infrastructure Capital-Growth Analysis

“…The study focused on Pakistan's overall and sectorial-level link between infrastructure investment and economic growth from 1972 to 2015. The study's main finding is that both government and private infrastructure investments have a positive but distinct economic development effect (Javid, 2019). This means that the marginal efficiency of private and public investment in all economic sectors varies.…”