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Macroeconomic Instability and Its Impact on Gross Domestic Product: An Empirical Analysis of Pakistan

Amjad Ali () and Hafeez Ur Rehman

MPRA Paper from University Library of Munich, Germany

Abstract: This study tries to answer the question, “has macroeconomic instability detrimental impact on gross domestic product of Pakistan over the period of 1980 to 2012?” For reviewing macroeconomic instability a comprehensive macroeconomic instability index is constructed by incorporating inflation rate, unemployment rate, trade deficit and budget deficit. Autoregressive Distributed Lag (ARDL) model has been used for examining the cointegration among the variables of the models and Vector Error-Correction model is used for short-run dynamics of the models. For investigating the causal relationship among the variables of the model Granger causality test has been applied. The empirical results of the study confirm the existence of cointegration between macroeconomic instability and gross domestic product in Pakistan. The results of the study show that macroeconomic instability has deep rooted and detrimental impact on gross domestic product of Pakistan. Hence, for achieving desired level of gross domestic product, Pakistan should make macroeconomic environment stable.

Keywords: Macroeconomic instability; Gross domestic product; Financial development; Secondary education; Foreign direct investment (search for similar items in EconPapers)
JEL-codes: E22 F63 G32 I21 P24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2015-12
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