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

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  • Ali, Amjad
  • Ur Rehman, Hafeez

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.

Suggested Citation

  • Ali, Amjad & Ur Rehman, Hafeez, 2015. "Macroeconomic Instability and Its Impact on Gross Domestic Product: An Empirical Analysis of Pakistan," MPRA Paper 71037, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:71037
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    More about this item

    Keywords

    Macroeconomic instability; Gross domestic product; Financial development; Secondary education; Foreign direct investment;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • P24 - Economic Systems - - Socialist Systems and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation

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