The Economic Consequences of Political Instability: Insights from the Economy of Pakistan

Mah Noor, Shabbir Ahmed, Mohammad Naeem, Asma Awan and Adnan Ali Shahzad
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Mah Noor: School of Economics, University of the Punjab, Lahore, Pakistan
Shabbir Ahmed: School of Economics, University of the Punjab, Lahore, Pakistan
Mohammad Naeem: Department of Economics, DM&AS, University of Education, Lahore, Pakistan
Asma Awan: School of Economics, University of the Punjab, Lahore, Pakistan
Adnan Ali Shahzad: Department of Economics, DM&AS, University of Education, Lahore, Pakistan

Bulletin of Business and Economics (BBE), 2024, vol. 13, issue 2, 1080-1089

Abstract: Inflation is a persistent economic challenge for Pakistan, deeply intertwined with the country's political instability. This research examines the influence of political instability on inflation, recognizing it as a crucial factor that undermines the effectiveness of economic policies and worsens macroeconomic imbalances. This study analyses the impact of various political factors, besides others, on inflation in Pakistan using data collected annually from 1981 to 2021, utilizing the ARDL bounds testing method. Inflation is the dependent variable whereas oil prices, GDP growth, domestic loans to the private sector, political factors, and political instability are independent variables. The findings imply that over the long run, while economic growth has a negative correlation with inflation, the quantity of credit extended to the private sector has a positive and significant correlation with inflation. On the other hand, both in the short- and long-term, inflation and oil prices have a significant and positive relationship.

Keywords: ARDL; Inflation; political instability; domestic credit; oil prices; GDP growth (search for similar items in EconPapers)
Date: 2024
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