The Relationship between Investment and Output

Hina Ali, Dr.Imran Sharif Chaudhry, Huma Ali

Abstract


A country faces fiscal deficit when the payments exceeds receipts. The two essential elements of fiscal policy are Government spending and taxes. The relationship between investment and output is investigated by constructing model of single equation. The economys output level is completely depends on the level of investment made within an economy. The aggregate demand shocks enhance the profitability of the investment, which leads to change in demand for labor and hence positively affect the output level. OLS technique is applied to estimate the model of this study. The results obtained are significant as coefficient of GDP is 4.51 at 1% level. It shows one unit change in GDP brings 4.51 units change in investment. The result of this study shows the negative link between investment and imports of an economy as imports have insignificant coefficient. The coefficient of saving is 0.61 and it is significant and positively related to the economic growth.


Keywords


Investment; Saving; Economic Growth; Pakistan.

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References


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