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

Ali, Amjad and Ur Rehman, Hafeez (2015): Macroeconomic Instability and Its Impact on Gross Domestic Product: An Empirical Analysis of Pakistan. Published in: Pakistan Economic and Soical Review , Vol. 53, No. 2 (December 2015): pp. 285-316.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Macroeconomic instability, Gross domestic product, Financial development, Secondary education, Foreign direct investment
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity; F - International Economics > F6 - Economic Impacts of Globalization > F63 - Economic Development; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; I - Health, Education, and Welfare > I2 - Education and Research Institutions > I21 - Analysis of Education; P - Economic Systems > P2 - Socialist Systems and Transitional Economies > P24 - National Income, Product, and Expenditure ; Money ; Inflation

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