The impact of Macroeconomic Variables on Economic Growth of Pakistan

Abstract

The influence of macroeconomic variables on the growth of Pakistan’s economy is investigated in this study by considering GDP as the representative of Economic Growth. In addition, Government Expenditure, Household Consumption, Inflation, Investment, and Net Export are selected to represent the macroeconomic variables from 1991 to 2020. To understand the behavior of study variables, descriptive statistics have been analyzed. The results of descriptive statistics indicate that the independent variables (Household consumption, Investment, Government expenditure, Inflation, and Net export) are meant to influence the economic growth (Dependent Variables) in Pakistan. To know the stationarity of time series data, the model ADF has been used. The results of ADF showed that independent and dependent variables were non-stationarity at level except inflation, but as the 1^st difference has been taken then all the variables became stationarity. The test of Johansen Cointegration has been performed to check the integrating equation in the given model and six co-integrated equations were found. Further to prove or disprove the hypotheses the technique of OLS (Ordinary Least Square) has been performed. The results of OLS showed that Govt. Expenditure, Household Consumption, and Net export have a positive and significant influence on Economic Growth. The significant but negative influence of Inflation on Economic Growth was found. Further, the influence of investment on economic growth is positive and significant at 10%. By seeing these results, this study has concluded that there is a significant influence of macroeconomic variables on the economic growth of Pakistan.