THE ROLE OF INFRASTRUCTURE IN PROMOTING DOMESTIC INVESTMENT IN PAKISTAN

Abida YOUSAF* and Naila ERUM**

Infrastructure is an umbrella term used for many activities, as it plays vital role for industrial and overall economic activities. The study examines the historical trends of GDP, infrastructure and investment in Pakistan. The study investigates the empirical impacts of infrastructure on domestic investment from 1975 to 2013. Variables included in the study are gross fixed capital formation, telephone lines, length of roads, inflation, GDP and interest rate; and the ARDL model is applied for estimation of empirical results. These results found the impact of infrastructure on domestic investment which has positive and significant effect. However, telephone lines variable remain insignificant during long-run, while it is significant in the short-run. The study also finds positive and significant relation between the domestic investment and GDP. The impact of interest rate and inflation is negative and significant during short-run on domestic investment but, the impact of inflation remains insignificant during long-run. The findings suggest that special attention should be paid towards infrastructure along with other variables, while formulating investment policies.