The Nexus Between Financial Liberalization and Private Investment: An Econometric Analysis from Pakistan

A Case Study of Pakistan

Abstract

The current study investigates the association between financial liberalization and private investment from 1980-2018 in Pakistan using Auto-Regressive Distributed Lag (ARDL) model. The real interest rate has been employed as a proxy of financial liberalization. Moreover, FDI, economic growth and inflation have been taken as other determinants of private investment. The bond test indicates a significant co-integrated link in the variables. The long length outcomes divulge that real interest rate has a negative and statistically significant effect on the Private investment. It explains if interest rate decreases, and the private investment increases, then ultimately, growth rate increases. The econometric analysis also illustrates that both variables are interdependent. The study, however, explains that due to the rise in private investment, saving also increases which in response, accelerates the development process, especially in Pakistan. So, it is endorsing that the government and other stakeholders should focus on taking careful steps to increase financial liberalization in the finance sector. As it will have an unbendable impression on the private investment, and there is indirectly linked progressive relation with economic growth.