Investigating Public Investment-Growth Nexus for Pakistan Nazima Ellahi 1 and Adiqa Kiani 2 1 Department of Economics, Foundation University Islamabad, Pakistan, 2 Federal Urdu University of Arts, Sciences and Technology, Islamabad, Pakistan Abstract: This empirical study has been conducted to analyze the relationship between public investment spending and economic growth for Pakistan. The study used annual time series data set over the period 1975 to 2009 and applied Autoregressive distributed Lag Approach (ARDL) to estimate short run as well as long run elasticities of the model. A disaggregated analysis of public sector spending has been carried out and showed that, there is a positive impact of public sector spending on economic growth of Pakistan in short run as well as long run. Keywords: Public Investment, Economic Growth, ARDL Application 1. Introduction It is the need of people to achieve high and sustainable standard of living. The issue of public spendings, private investment and public consumption has been a long debated issue among macroeconomists and development economists. Developing nations have tried to explore the reasons and causes due to which western world have achieved higher rates of growth. Economists and policy makers are making efforts to find the linkage between public spending and economic growth. Public investment in the infrastructure enhances private investment which in turn increases the marginal productivity of private capital and improves the growth of GDP (Looney, 1997). A positive change in government spendings affects aggregate demand and boosts up the productive capacity of an economy. Furthermore, it brings innovations and improvements through technological changes and causes high growth in real GDP through multiplier effect. A vast majority of literature have discussed the determinants of public investment and its relevance for economic growth. For Pakistan a number of studies have been conducted for exploring this nexus which include. Khan (1988), Looney and Frederiken (1995), Loony et al. (1997), Khan and Sasaki (2001), Naqvi (2003), Ghani and Din (2006), Khan and Khan (2007), Ahmad and Qayyum (2007) and Majeed and Khan (2008). In some studies the relationship between growth and investment is investigated, while others have attempted to examine the determinants of public and private investment. The Specific objectives of the study include to find the short run as well as long run effects of public investment and economic growth, and to find the direction of causality between public investment and economic growth. Rest if this study is organized as Section 2 discusses the review of related literature for theoretical as well as empirical studies. Section 3 reviews trends of investment in Pakistan. Model, methodology, data and variables are discussed in section 4. Results are analyzed in section 5. Final section is reserved for conclusion. 1.1. Public Investment in Pakistan 1 Email: nazimaellahi@yahoo.com, Tel: 0092-332-5225675 239 2011 International Conference on E-business, Management and Economics IPEDR Vol.25 (2011) © (2011) IACSIT Press, Singapore