Analysis of infrastructure investment and institutional quality on living standards: A case study of Pakistan (1990-2013)

Abstract

In this study, the relationship of Infrastructure Investment and Institutional Quality (CIM) on Living Standards of people was analysed for Pakistan. This paper comprises of trend analysis of institutional quality for different periods of governments of Pakistan coupled with an empirical analysis of the model. The empirical estimates are comprised of unit root test, Johansen Cointegration, VAR analysis and Granger Causality tests for the sample of 1984-2013. The trend analysis depicts fluctuations of Institutional Quality in different governments due to different political conditions of every period. The empirical analysis shows that there exists long standing relationship between the Institutional Quality, Infrastructure Investment and living standards of people. However, the VAR analysis shows that the coefficients of only Institutional Quality and Living Standards of People (previous year i.e. lag variables) resulted significance in affecting living standards of the people. The Granger causality result shows bidirectional and uni-directional relationships among variables. The results in our study indicate bi-directional relationships of Living Standards of People (GDPC) with Institutional Quality (CIM). Secondly, CIM and Infrastructure Investment (Developmental Expenditure) are having uni-directional relationship. Thirdly, Population and Institutional Quality (Contract Intensive Money) are having uni-directional relationship. Fourthly, GDPC and Infrastructure Investment carry a uni-directional relationship.