Determinants of private domestic investment in Palestine: time series analysis

Abstract

Purpose – This empirical paper aims to examine the impact of interest rate (IR) and political instability (POLINS) on Palestine's domestic private investment. Design/methodology/approach – A set of econometric techniques of time series data are adopted to meet the study objectives. They include regression analysis, unit root tests, cointegration test, ARDL & Bound tests, VAR test and Granger causality test. Findings – The study's primary results complement the neoclassical approach, which states that the IR is negatively associated with domestic private investment. The empirical results reveal that there is no long-run relationship. Also, there is no causality between domestic investment and lending rates. Accordingly, these findings alert policymakers to draw a series of steps to minimize the IR at a minimum to stimulate investment for improved economic growth and development. Practical implications – There is still no national currency in Palestine. The Palestinian Monetary Authority (PMA) is advised to set an appropriate ratio of the IR for the currencies-in-circulation in Palestine for boosting investment and economic development. Originality/value – This paper provides new background information to both policymakers and researchers on the main determinants of investment in Palestine using econometric analysis. Accordingly, this critical issue is required to be examined in Palestine for stimulating investment.

Keywords

• Econometrics
• Investment
• Interest rate
• Palestine
• Times series