THE IMPACT OF MACRO ECONOMIC VARIABLES ON ECONOMIC GROWTH OF PAKISTAN

Abstract

The main objective of this study to examine the relationship between GDP, imports, exports, inflation and interest rate on the  economic growth of Pakistan. Pakistan’s economic growth has been unstable in recent decades, delaying its ability to reduce poverty and improve living standards. This study investigates the impact of macro-economic variables (GDP, imports, exports, inflation and interest rate) on economic growth of Pakistan from 1960 to 2022. The data was collected from world development indicator (WDI). Using an Auto regressive Distributed Lag (ARDL) model, this research has examines the long term effects of these variables on Pakistan’s economic growth. The Augmented Dickey-Fuller (ADF) unit root test is applied in this model. ARDL bond test confirmed the long run relationship between variables. The results show that exports, inflation and interest rate have a negative and insignificant impact on economic growth in the long term, while imports positive and significant impact on economic growth. The study also reveals that there are significant long term relationship between variables. The results of this study is that policymakers should focus on promoting exports, maintaining low inflation and encouraging investment through favorable interest rates to achieve sustainable economic growth in Pakistan.