Government consumption expenditure, velocity of money‚ export, and long run investment: Implication for Libya

Abstract

The objective of this study is to construct an investment function of the way in which investment behaves in Libya’s economy. Variables such as government consumption expenditure, velocity of money‚ and export are believed to be of  importance affecting investment using the VAR approach to examine government consumption expenditure, velocity of money‚ export, and long-run investment for the period of 1962-2010. The results revealed that over the long-run‚ investment positively related to government consumption expenditure and export‚ and that negatively related to velocity of money (the proxy for interest rate). The results obtained suggest that investment driven by oil revenue availability is extremely prone to fluctuations that contribute to overall economic instability.