Investigating the Inflation-Economic Growth Nexus in Pakistan from 1990 to 2020

Imran Ali

International Journal of Economics & Business Administration (IJEBA), 2024, vol. XII, issue 2, 71-90

Abstract: Purpose: This study explores the historical nexus between inflation and economic growth in Pakistan, spanning the years from 1990 to 2020. The main aim of the present study is to investigate the nexus between inflation and economic growth in Pakistan, and to suggest recommendations for inflation and GDP growth. Design/Methodology/Approach: Through a meticulous examination of economic variables, policy shifts, and external influences, this study uncovers the intricate dynamics shaping Pakistan's economic scenario. Drawing inspiration from a rich tapestry of scholarly endeavors, the research synthesizes insights from diverse perspectives to offer a comprehensive understanding of this nexus. Empirical findings underscore a critical gap in the comprehensive historical analysis specific to the Pakistani economic context. Descriptive statistics analysis reveals the dynamic nature of variables, showcasing mean values, variability, and distribution characteristics. Unit root tests affirm significant associations among GDP growth, inflation, and unemployment indicators, while correlation analysis unveils a negative relationship between GDP and inflation, highlighting the complex interplay between economic growth and price stability. Vector autoregression estimates and least square regression methods further validate these relationships, emphasizing the impact of inflation and unemployment on GDP growth. The ECM model introduces a temporal dimension, elucidating short-term dynamics and long-term equilibrium relationships. Findings: The research establishes intricate links between inflation, economic growth, unemployment, and foreign direct investment, providing empirical evidence supporting the existence of a meaningful nexus. The negative correlation between inflation and GDP growth implies that policymakers should carefully consider inflationary pressures to foster sustainable economic development. Practical Implications: Policy recommendations anchored in empirical evidence are proposed to ensure a balanced and favorable nexus between inflation and economic growth in Pakistan. These findings contribute to the broader economic discourse, offering valuable insights for policymakers, researchers, and practitioners aiming to guide Pakistan's economic trajectory with evidence-based strategies. Originality/Value: Thoughtful state interventions and targeted strategies are recommended to maintain a favorable level of inflation conducive to positive economic growth.

Keywords: ADF; ECM; Pakistan; Economic Growth rate; FDI; Inflation; Nexus. (search for similar items in EconPapers)
JEL-codes: E31 E6 F21 J64 (search for similar items in EconPapers)
Date: 2024
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