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The purpose of the study is to re-examine the issue of the crowding-in/out effect of public investment on private investment by adopting an improved methodology of the ‘nonlinear autoregressive distributive lag’ (NARDL) model. Taking data from 1970 to 2016, the study finds that public investment crowds-in private investment both in the long-run as well as the short-run. However, the short-run elasticity is statistically more significant and larger in magnitude than the long-run elasticity. It has also been found that macroeconomic uncertainty significantly affects private investment both in the long-run and the short-run. Among other determinants of private investment, we observe foreign direct investment (FDI) inflow, credit flow to the private sector, household savings, real rate of interest and expected output affect private investment significantly. The policy implication of the study calls for the designing of public sector policies that enthuse more private investments. More credit flow to private sectors and FDI in different sectors of the economy should be prioritized. JEL Codes: E22, H54, C32
Akber et al. (Sun,) studied this question.