Impact of Public and Private Investment in Transport, Fdi and Interest Rate on Economic Growth

Published: 2021-09-29 22:25:09
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Category: Finances, Economy, Experience

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The aim of this paper is to analyses the relation between foreign direct investment, interest rate, public and private investment in transport and economic growth. Transport and the Economy found strong theoretical grounds for believing that transport investment will be boost national economies. Transport is considered to be one of the most influential and dynamic systems of the economy. The transport system is continually changing in time and space, it can be considered as determining factor for economic development and economic growth. The qualitative research outgrowth are then identified and defined factors which deeply explain the relationship between transport and the economy.
Business User Benefits, The Biggest component of economic benefits from most large transport projects tends to flow from direct user benefits, including the value of business time saved and other savings from minimize transport costs. These savings are presumed to be a direct advantage to businesses, which will grow GDP through increased output (and productivity) and/or increased profits ratios, the latter being more likely in imperfect markets where producers exercise market power. The quantitative research results are generated figures based on statistical data which provides with the evidence about the actual alliance between transport and the economy Growth.The main goal of this research paper is to provide decision makers, planners, and academic spectrum with the thorough explanation of the applied relationship between the transport system and the economic development and economic growth. The potential economic impacts of transport improvements are not only likely to be significant and wide-ranging, they are also likely to be context specific. For example, some industry sectors benefit from being part of a cluster of similar or related businesses with access to wide and deep pools of specialist skills, other sectors rely more heavily on connectivity to international gateways for access to overseas markets, whilst other sectors function perfectly well wherever they are located. Developing an understanding of the transport and transport-related challenges and opportunities facing alternative industry sectors is an important first step in the development of an investment program to improve productivity and competitiveness. Investment in transport networks can influence the functioning of labour markets, business productivity and competitiveness.
These impacts interact over time and can lead to improvements in economic output and the geographical distribution of economic activity. They can also impact on the environment, quality of life and the overall attractiveness of towns and cities. Improvements in transport connectivity driven by increased network capacity, reduced travel times and costs together with improved network reliability generate improvements in productivity through what are sometimes referred to as ‘agglomeration economies’. Reduced transport costs mean that businesses can: Connect with potential suppliers, enabling them to access higher-quality and/or lower-cost inputs. Connect with potential customers, enabling them to supply markets further afield. Connect with a wider pool of talent in the labour market, allowing skills to be better matched to employment opportunities.
Reduced transport costs mean that individuals can: Participate in the labor market. Access a wider range of jobs, increasing the chances that they can find a position that provides a better match for their skills. Connect with leisure and retail opportunities, allowing them to access a wider range of products or reach similar products at cheaper prices and helping to increase the competitiveness of local businesses. The connection between partnership investment in transportation and the economic growth are very complex and poorly understood. Transportation is a massive enterprise with substantial direct and indirect effects on economic productivity and economic growth. Transportation industries the provision of transportation services, the manufacture of vehicles, and the construction of infrastructure are major economic activities in themselves.
Transportation is a cost, to a greater or lesser extent, of virtually every other good or service in the economy. Investment in Transportation is an enabler of economic activity and a facilitator of international trade. Transportation is a measure of economic activity: in many instances, it may be a leading indicator, inasmuch as physical movements precede financial transactions. Investment in Transportation is a reflection of economic activity, inasmuch as products must be moved to markets. Some of these relationships are clearly circular: transportation affects. Economic conditions, and economic conditions influence transportation.
Furthermore, all of these relationships shift with changes in technology, economic development, geographic changes, and many other factors. Interest rates have economic impact as both an indicator and influential element in the growth of the market. The interest rates on large purchase items such as homes, small business loans and automobiles can show if the economy is healthy or if it is slowing down and needs an influx of cash to get going again. -Inflation and interest rates are often linked, and frequently referenced in macroeconomics. Inflation refers to the rate at which prices for goods and services increaseIn general, as interest rates are decline, more people are able to borrow more money. The outcome is that consumers have more money to spend, causing the economy to grow and inflation to increase.
The opposite holds true for rising interest rates. As interest rates are increased, consumers tend to save as returns from savings are higher. With less disposable income being spent as a result of the increase in the interest rate, the economy slows and inflation reduced. Under a system of fractional-reserve banking, interest rates and inflation tend to be inversely correlated. This relationship forms one of the central principle of contemporary monetary policy: central banks manipulate short-term interest rates to affect the rate of inflation in the economy. In economics, the quantity theory of money states that the supply and demand for money determines inflation. If the money supply grows, prices tend to increase, because each individual piece of paper becomes less valuable.
Low Interest Rates: In a poor economy, banks and other financial institutions tend to lower interest rates on loans to attract, businesses to apply for credit. This allows money to circulate through the economy and restorative, growth. The process creates a symbiotic cycle where businesses use the loan money to earn new property and build new locations that filters down to consumers and private construction organizations, who are then hired to construct, new business properties and, control, the new locations. Consumers use the money received from working to purchase goods and services at other existing businesses.
High Interest Rates: Rising interest rates are a strong indicator of economic growth. As economic growth increases, more businesses reach out to banks and other financial lenders for extensions of capital. Banks see this as an opportunity to turn a profit and slowly begin increasing interest rates. This must be done carefully, as interest rates that are deemed too high may lead to inflation. This economic condition is caused by an increase in the price of goods along with a shortage in available capital. Many financial institutions and institutional investors justify the international diversification of their portfolios by the rule according to which in each economy and in the long run the return of their assets is roughly equal to the growth rate.
This is a direct application of the golden rule of accumulation. But what are the foundations and the reliability of such a rule? In the economic theory, the relations between real interest rate and growth rate were often studied. However, whereas the determinants of the real rates in the short and medium terms (savings rate, capital goods profitability, monetary policy orientation, risk aversion etc) are rather well identified, the necessary object of contemporary theoretical work is the monetary control with the use of an interest rate rule. A country’s GDP and its interest rates are linked in a variety of ways.
Effects: The effect of real GDP on interest’s rates is essentially equivalent to the effect of domestic economic growth on interest rates, according to the economist Steven M. Suranovic. A rise in GDP, according to Suranovic, will lead to a increase in interest rates, as demands for funds increase.
Feature: There are several reasons that an increase in GDP can lead to a rise in interest rates. For one, when an economy is booming, more investors will be investing money in it. This increased demand for funds can lead to lenders asking for higher interest rates. Secondly, as an economy booms, inflation will generally increase. This will lead to an increase in the interest rate commanded by lenders, so as to keep pace with inflation. Holding money has an opportunity cost in the sense that the money could be invested elsewhere and earn interest. Even if the money is held in an interest-earning checking account, a higher rate of interest could be earned by purchasing financial instruments such as bonds. As the rate of interest goes higher, the opportunity cost of money increases. So as interest rates go up (down), people will be less (more) willing to hold money.
Foreign direct investment (FDI) and trade are often seen as important catalysts for economic growth in the developing countries like Pakistan, India, Iran and Bangladesh FDI is an important vehicle of technology transfer from developed countries to developing countries.
FDI also stimulates domestic investment and facilitates improvements in human capital and institutions in the host countries. International trade is also known to be an instrument of economic growth (Frankel and Roomer). Trade facilitates more efficient production of goods and services by shifting production to countries that have comparative advantage in producing them. Even though past studies show that FDI and trade have a positive impact on economic growth, the size of such impact may vary across countries depending on the level of human capital, domestic investment, infrastructure, macroeconomic stability, and trade policies. The literature continues to debate the role of FDI and trade in economic growth as well as the importance of economic and institutional developments in fostering FDI and trade. This lack of consensus limits our understanding of the role of FDI and trade policies in economic growth processes and restricts our ability to develop policies to promote economic growth. This article analyzes the role of foreign direct investment and trade in promoting economic growth across selected developing countries and the interaction among FDI, trade, and economic growth. We examine data from 66 developing countries over the last three decades. Our results suggest that FDI, trade, human capital, and domestic investment are important sources of economic growth for developing countries. We find a strong positive interaction between FDI and trade in advancing economic growth.
Our results also show that FDI stimulates domestic investment. The contribution of FDI to economic growth is enhanced by its positive interaction with human capital and sound macroeconomic policies and institutional. Foreign direct investment (FDI) has become to be known as one of the most effective method of drawing flows from external sources. The use of this technique has also become a significant aspect of building capital in developing countries around the world. However, the share of investment from these countries in other states has been declining over the past years. For developing countries, the positive impact of foreign direct investment is becoming increasingly popular as a tool for economic growth and strengthening (Muhammad 2007).
The most strongest positives of implementing FDI is the increase in aggregate productivity, increased opportunities of employment, greater outflow of exports and exchange of technological advancement between the investor and country. Having foreign direct investment in a developing country enables the employment and exploitation of natural and human resources, to implement innovative businesses practices, in terms of management and marketing, and facilitates in reduction of budget deficit. Another benefit of FDI is that it does involve the risks and regulations of external debt and adds value to the human capital through provision of on the job training.
For countries that face a scarcity of capital and technological expertise usually experience growth slower than those that do. According to a number of studies, foreign direct investment can serve as a means of transfer of technology and knowledge (Dunning & Hamdani 1997). This research paper aims to analyze the impact of foreign direct investment (FDI) in Pakistan for the period 1981 to 2010 and to observe the relationship between inflation (CPI) and economic growth. Pakistan is a young country with an ancient history and with rapidly growing populations. Her economy primarily depends on agriculture, a per capita income is low, and much of the population lives in poverty.
Therefore policies to slow down inflation rate and to draw FDI in the country are the central objectives of the macroeconomic policy makers. Pakistan is striving to make its way in the modern world and being the foremost member of SAARC (South Asian Association for Regional Cooperation) and one of the most important country of this region blessed with massive quantity of resources in the form of mineral assets, population (man power), agriculture technology and other God gifted natural resources. FDI and Inflation plays a very vital role in its future growth and development. The aim of this paper is to investigate the impact of foreign direct investment (FDI) on economic growth in the transition countries of southeast Europe.
The empirical analysis embraces seven southeast Asian countries in the period 1998-2007. The authors use Prais-Winsten regression with panel-corrected standard errors for the preferred estimation model. The main research result is the positive and statistically significant effect of FDI on economic growth. The impact of FDI is statistically significant and robust when including data on domestic investments.
The results are robust to considering endogeneity issues (i. e. , inverse causality). For developing countries foreign direct investment (FDI) is considered to be a way to transfer technology and capital from other developing and especially developed countries. A reason in theoretical literature is as following: when FDI comes to a domestic country (in specific business) that firm receives competitive advantage due to the usage of new knowledge, experience, ways of production and management. Current successful economic growth of developing countries is explained by “catch up effect” in technological development with developed countries.

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