Public Sector Development Expenditure and Economic Growth: The Case of Pakistan

Investment is said to be one of the most important determinants of economic growth and has received considerable attention. Various governments in Pakistan have adopted measures to stimulate investment with the prime focus on foreign investors and massive public sector development program (PSDP). In order to ascertain the relationship between the various types of investments and its impact on economic growth Policy Research Institute of Market Economy (PRIME) recently launched a research report titled ‘Public Sector Development Expenditures and economic growth: the case of Pakistan’.

In the report three types of investments including public, private and Foreign Direct Investment (FDI) are studied and a standard econometric technique has been applied to find the nature and cause of the relationship between these three and economic growth. For public investment five components including health, education, housing, energy and transport and communication of Public Sector Development Program (PSDP) were taken into account. Based on the findings of the research in the long-run all the three types of research have a positive relationship however private investment has the strongest impact on economic growth. Furthermore the relationship between individual components of PSDP and economic growth was also studied and transport and communication, energy and education had positive impacts on economic growth while housing and work division and health development expenditure had negative relation with economic growth. Lastly the study also showed that FDI had the least impact on economic growth.

The research report urges the government to focus on private investments and develop measures which would not stifle but stimulate private investment. Furthermore it should help improve the regulatory environment and encourage the development of private energy market to resolve the on-going energy crisis which is a major hindrance. Under PSDP the government should focus on projects in education, transport and communications and energy sector.

For Media Inquiries:

Ali Salman, Executive Director, PRIME (Cell: 0301 845 1179)

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