Empirical analysis of relationship between investment, good governance and GDP growth rate in Pakistan (1996-2016)

Progress and prosperity of the nations, directly or indirectly depend on economic growth of the country. High and stable GDP growth rate indicate economic strength of the nation, which depend on various economic and non-economic factors. Investment (i.e. both private and public) provides significant contribution to the economic growth and development in a country. On the other hand, non-economic factors also play an important role in developing productive environment and enhancing productive capacity of the economy. Pakistan is a developing country and its weak and unstable economy demands high and stable GDP growth rate while it is subsisting on low and unstable GDP growth rate. Therefore, it is required to explore major economic and non-economic factors that hinder the GDP growth rate in Pakistan. In order to find out empirical impact of economic and non-economic factors on GDP growth rate in Pakistan, ARDL approach was applied on time series data during the period of 1996 to 2016. Empirical results confirmed the existence of log run relationship between dependent and independent variables. In addition, the speed of adjustment was not found to be very high (i.e. -0.35362). On the basis of study results, therefore, it is suggested that there is a need of economic reforms and implementation of effective policies that can make economy of Pakistan strong and stable, which in turn enable the country’s economy to grow faster and to compete in international market.