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A Dynamic Macroeconometric Model of Pakistan’s Economy


  • Muhammad Arshad Khan

    (Pakistan Institute of Development Economics, Islamabad.)

  • Musleh ud Din

    (Pakistan Institute of Development Economics, Islamabad.)


In this study, an attempt has been made of develop a dynamic macroeconometric model of Pakistan’s economy to examine the behaviour of major macroeconomic variables such as output, consumption, investment, government expenditure, money, interest rates, prices, exports, and imports. The model consists of 21 equations, of which 13 are behavioural and the rest are identities. The Engle-Granger two-step cointegration procedure is used to derive the long-run and short -run elasticities for the period 1972-2009. The test of significance of each estimated equation seems to validate the model. The estimated long-run parameters are used to perform simulation experiments to determine the model’s ability to track historical data and to assess the behaviour of the key macroeconomic variables in response to the changes in selected exogenous variables. The results indicate that the majority of macroeconomic variables follow an increasing trend over the period of simulation, 2009-2013.

Suggested Citation

  • Muhammad Arshad Khan & Musleh ud Din, 2011. "A Dynamic Macroeconometric Model of Pakistan’s Economy," PIDE-Working Papers 2011:69, Pakistan Institute of Development Economics.
  • Handle: RePEc:pid:wpaper:2011:69

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    References listed on IDEAS

    1. Nair-Reichert, Usha & Weinhold, Diana, 2001. " Causality Tests for Cross-Country Panels: A New Look at FDI and Economic Growth in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(2), pages 153-171, May.
    2. Luiz de Mello, 1997. "Foreign direct investment in developing countries and growth: A selective survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(1), pages 1-34.
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    Cited by:

    1. Amber Fatima & Abdul Waheed, 2014. "Economic uncertainty and growth performance: a macroeconomic modeling analysis for Pakistan," Quality & Quantity: International Journal of Methodology, Springer, vol. 48(3), pages 1361-1387, May.
    2. Khan, Muhammad Arshad, 2015. "Modelling and forecasting the demand for natural gas in Pakistan," Renewable and Sustainable Energy Reviews, Elsevier, vol. 49(C), pages 1145-1159.
    3. Qadri, Faisal Sultan & Waheed, Abdul, 2014. "Human capital and economic growth: A macroeconomic model for Pakistan," Economic Modelling, Elsevier, vol. 42(C), pages 66-76.
    4. Inayat Ullah Mangla, 2011. "Reconstructing the Performance of Pakistan’s Political Economy: Another Paradigm," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(Special E), pages 30-70, September.
    5. Durmus Ozdemir & Mustafa Kemal Gündoğdu, 2012. "Structural Macro econometric Model of Turkey; Impact of Structural Characteristics on Macroeconomic Indicators," EcoMod2012 3886, EcoMod.

    More about this item


    Macroeconometric Model; Pakistan Economy; Cointegration; Forecasting;

    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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