Does democracy embolden economic growth in Pakistan? Evidence from ARDL bound testing and rolling window analysis

Abstract

This study investigates the relationship between democracy and economic growth in Pakistan by using the annual time series data from the period 1972 to 2013. The ARDL bound testing cointegration approach, Johansen and Juselius cointegration approach and Gregory and Hansen structural break cointegration approach confirm the valid long-run relationship between democracy and economic growth. Results suggested that democracy, labour force and gross fixed capital formation have positive and significant impact on economic growth in both long run and short run. Results of generalised forecast error variance decomposition method under vector autoregressive (VAR) system suggested unidirectional causal relationship between democracy and economic growth in Pakistan. The present study may guide policymakers in formulating conclusive monetary and fiscal policies to increase economic growth in Pakistan and also get sustainable economic growth for long span of time.