EXPLORING IMPACT OF MACRO ECONOMIC VARIABLES ON GDP OF PAKISTAN

Abstract

Purpose-This research work explores the impact of macroeconomic variables like inflation, real exchange rate and interest rate on GDP of Pakistan in the light of 32 years data, for the period of 1980 to2013. Methodology/sample-Research was secondary data based, and multivariate regression analysis was used to analyze the data. Econometric model used for analysis consisted of GDP as dependent variable while the independent variables were interest rate, exchange rate and inflation rate. Data was taken for these variables from the website of State Bank of Pakistan and World Bank. Individual significance of the variables, overall significance and goodness of fit of the econometric model was analysed. Findings-The study found that there is significant impact of inflation, interest rate and exchange rate on GDP. As far as the signs of co-efficient are concerned, inflation and interest rate had negative relation with GDP while interest rate possessed positive relation with GDP. Practical implications-Based on results and its analysis it is recommended that Government adopted tight monetary policy to reduce inflation as the results indicate that inflation has significant but negative impact on GDP. In case of developing counties like Pakistan high value of real exchange rate should be maintained because results show that there is significant and positive impact of exchange rate with GDP. Ceiling of interest rate should be removed in order to boost the economy.