Impact of Macroeconomic Instability on Private Investment: Evidence from Pakistan

Abstract

This paper investigates the effects of macroeconomic
instability on private investment. Contrary to the existing
studies about Pakistan, which use a single variable as a proxy
for macroeconomic instability, we contributed by
constructing a Macroeconomic Instability Index (MII)
consisting of six variables. The study uses time-series data
from 1976 to 2013 and applies the Autoregressive Distributed
Lag (ARDL) technique. The empirical findings show an
inverse relationship between macroeconomic instability and
private investment. This warrants that policymakers should
minimize macroeconomic instability as for as possible.