Abstract
This study is investigating the short run and long run relationship among major macroeconomic variables and economic growth for the economy of Pakistan during 2000 - 2015. Autoregressive distributed lag (ARDL) model and bounds test have been applied to estimate the short run and long run relationship between GDP and other major macroeconomic variables like, labour force, rate of capital formation, money supply, inflation rate, trade rate, foreign direct investment (FDI) and unemployment. ARDL model indicates significant relationship between labour force, FDI and unemployment economic growth, in the long run, at 1% and 5% level. Keywords: Macroeconomic variables; capital formation; money supply; inflation; trade; FDI; unemployment; economic growth; ARDL model. JEL Code : O1; O4; F43. DOI : 10.7176/JRDM/54-07 Publication date : April 30 th 2019
Highlights
For the economic development of the countries, one cannot rule out the importance of the rate at which the gross domestic product (GDP) is growing (Barro, 2004)
This study is different from all other studies conducted, one; the study is taking 40 years of data into consideration which will enable to evaluate the significance of variables over long run, two; monetary variables like money supply, capital formation are included in the study which have not been considered in any study so far for the correlation with economic growth three; the study is considering time series analysis unlike other major studies done before
: Capital formation has a significant effect on economic growth in Pakistan. : Supply of money has a significant effect on economic growth in Pakistan. : Inflation has a significant effect on economic growth in Pakistan
Summary
For the economic development of the countries, one cannot rule out the importance of the rate at which the gross domestic product (GDP) is growing (Barro, 2004). The macroeconomic variables like rate of inflation, money supply, investment trade openness etc., are the major determining factors of GDP. A number of researches have been conducted to estimate the association of GDP with major macroeconomic variables, but very few studies are focused on the nature of relationship and intertemporal linkages between the variables. Aspect of exploring the nature of connection between; for e.g., labour force participation rate may be attributed to the investment policies adopted for domestic and foreign investment. The importance of exploring the nature of the nexus between the key macroeconomic indicators like labour force, capital formation rate, money supply, inflation, trade volume, foreign direct investment and unemployment and economic growth is the compelling force behind this study. This study is the departure from past studies as it uses the time series data to examine the temporal relationship between the variables
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