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Exchange Rate and Economic Growth in Pakistan (1975-2011)

Author

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  • Ahmad, Arslan
  • Ahmad, Najid
  • Ali, Sharafat

Abstract

This paper investigates the impact of inflation, nominal exchange rate, FDI and capital stock on economic growth of Pakistan by using time series data for the period of 1975-2011. Augmented Dickey Fuller (ADF) test is applied to check the stationary of variables. All variables found stationary at level. So Ordinary Least Squares method is applied to check the relation between dependent variable (GDP) and independent variables (Exchange rate, FDI, capital stock). The results of OLS show that inflation and exchange rate has negative and significant affect economic growth of Pakistan. One percent increase in inflation will decrease GDP by 0.29 percent. Exchange rate coefficient is -0.5504 that means one percent increase in exchange rate will reduce GDP by 0.55 percent. Capital stock (GFCF) does not significantly affect economic growth. Foreign direct investment has positive and significant effect on economic growth of Pakistan. The results show that one percent increase in FDI will raise GDP by 0.37%. Our model is free from hetroskedasticity and autocorrelation with satisfactory functional form that suggests the stability of the model. The CUSUM and CUSUMSQ are showing that the model is structurally stable within the 5% of critical bounds. Government should take significant steps to increase the standard of exporting goods to make smooth balance of trade.

Suggested Citation

  • Ahmad, Arslan & Ahmad, Najid & Ali, Sharafat, 2013. "Exchange Rate and Economic Growth in Pakistan (1975-2011)," MPRA Paper 49395, University Library of Munich, Germany, revised Jul 2013.
    • Handle: RePEc:pra:mprapa:49395
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    References listed on IDEAS

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    7. Najid Ahmad & Muhammad Hayat & Muhammad Luqman & Shafqat Ullah, 2012. "The Causal Links Between Foreign Direct Investment And Economic Growth In Pakistan," European Journal of Business and Economics, Central Bohemia University, vol. 6(0), pages 20-211:6, September.
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    Citations

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    Cited by:

    1. Nazir, Sidra & Saeed, Saira & Muhammad, Atta, 2017. "Threshold Modeling for Inflation and GDP Growth," MPRA Paper 79649, University Library of Munich, Germany.
    2. Ali, Sharafat, 2014. "Inflation, Income Inequality and Economic Growth in Pakistan: A Cointegration Analysis," MPRA Paper 53706, University Library of Munich, Germany.
    3. Long Vorlak & Ignatius Abasimi & Yang Fan, 2019. "The Impacts of Exchange Rate on Economic Growth in Cambodia," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 5(2), pages 78-83.
    4. Ismaila Akanni Yusuf & Mohammed Bashir Salaudeen & Isaac Azubuike Ogbuji, 2022. "Exchange Rate Fluctuation and Inflation Nexus in Nigeria: The Case of Recent Recession," Journal of Economic Impact, Science Impact Publishers, vol. 4(1), pages 81-87.
    5. Muhammad Waqas Chughtai & Muhammad Waqas Malik & Rashid Aftab, 2015. "Impact of Major Economic Variables on Economic Growth of Pakistan," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 11(2), pages 94-106, April.
    6. Sharafat, Ali & Hamid, Waqas & Muhammad, Asghar & Raheel Abbas, Kalroo & Muhammad, Ayaz & Mukhtyar, Khan, 2013. "Foreign Capital and Investment in Pakistan: A Cointegration and Causality Analysis," MPRA Paper 55640, University Library of Munich, Germany, revised 28 Apr 2013.
    7. Chen Ku‐Hsieh, 2021. "Depreciate to save the economy? An empirical evidence worldwide," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 1563-1585, January.
    8. Muhammad Naveed Jamil & Abdul Rasheed & Adnan Maqbool & Zeeshan Mukhtar, 2023. "Cross-cultural study the macro variables and its impact on exchange rate regimes," Future Business Journal, Springer, vol. 9(1), pages 1-15, December.
    9. Safwat Alaa & Salah Ashraf & Elsherif Marwa, 2021. "The Impact of Foreign Direct Investment on the Economic Growth of Egypt (1980-2018)," International Journal of Economics and Financial Issues, Econjournals, vol. 11(5), pages 74-85.

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    More about this item

    Keywords

    Economic Growth; FDI; Inflation; Pakistan;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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