Long Run Relationship between Domestic Private Investment and Manufacturing Sector of Pakistan: An Application of Bounds Testing Cointegration

Abstract

The purpose of the present study is to analyze relationship between the domestic investment and manufacturing sector in Pakistan. The study employs an autoregressive distributed lag (ARDL) approach to investigate the effect of domestic private investment on manufacturing sector growth of Pakistan over a time period of 1972 to 2017. The result of the study finds that domestic private investment in manufacturing, employment, and market size have significant and positive relationships with manufacturing growth, while exports and inflation have positive insignificant influence with growth manufacturing in short-run and long run. It is highly suggested that economic growth in manufacturing of Pakistan needs a significant level of domestic private investment which lead to the capital formation and economic progression.