Effects of Macroeconomic Variables on Economic Growth of Pakistan

Muhammad Waqas Chughtai, Anum Zamurd Khan

Abstract


It is widely believe that role of inflation, interest rate, foreign direct investment and exchange rate in affecting the macroeconomic performance of a country is of leading nature. The impact of above four variables on economic development depends on the policies, economic environment of a country. The study attempts to investigate the consequences of impact exerts by fluctuation in inflation rate, interest rate, exchange rate and FDI on the economic growth of Pakistan. Annual time series 23 years’ secondary data analyze for the period from 1991 to 2013. A comprehensive set of results thus derived to provide assist to formulate policies and plans to overcome this problem.  Multivariate of regression analysis is used to investigate the sample data. There are numerous number of macroeconomic variables that put impact on economy but this study carried out only four major economic variables included inflation, currency exchange rate, interest rate and foreign direct investment for the purpose to manage robust analysis. Macroeconomic variables are treated as independent variables and economic growth of Pakistan is treated as dependent variable. The study stated that there exists a significant relation among the inflation rate, interest rate, foreign direct investment and exchange rate with GDP growth rate of Pakistan. The sign of coefficient for inflation rate and interest rate was found negative while sign of coefficient for exchange rate was found positive. The study suggested that Government of Pakistan should take serious steps to control the level of inflation because it would be harmful for the growth of the economy. The work also suggested that economic policymaker should maintain high exchange rate and low level of interest rate to boost up the economic condition of Pakistan. Because high exchange rate is positively correlated with GDP growth while high interest rate negatively associated with economic growth of the country.


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ISSN : 2251-1555