DETERMINANTS OF PRIVATE INVESTMENT IN UNITED ARAB EMIRATES

The purpose of the study is to determine key factors influencing private investment in the UAE. The study examines eleven independent variables as determinants of private investment, according to adjusted data in the UAE for the period between 1990 and 2010. The methodology aims to formulate a linear regression model for private investment after testing multicollinearity between independent variables. The Augmented Dickey-Fuller and Phillips-Perron tests will be utilized to investigate the stationarity of the variables. Then, Johansen Cointegration test will be conducted. Finally, the Vector Error-Correction Model will be fitted to the private investment data. Findings include that the real public expenditure stimulates the private investment more than the non-oil GDP. More specifically, ceteris paribus, a ten-million Dirham increase in the real public expenditure stimulates private investment by 3.16 million Dirhams; however a ten-million Dirham increase in the non-oil GDP will result only in a 1.11million Dirham increase in the private investment. Practical implications lead into further studies as the causality between economic growth and investment, in addition to the relationship between private and public investments. The value of the study is that the private investment depends, first of all, on real public expenditures. The fiscal policy should play a vital role to stimulate private investment and smooth business cycle