Nexus Among Economic Growth and Macroeconomic Variables: An ARDL Approach for Pakistan

Abstract

Economic growth is one of the core objectives concerned with the nation's macroeconomic policies globally. Economic growth is concerned with the macroeconomic variables, the study caters to the connection and relation between the macroeconomic variables and economic growth in the specific context of the country, Pakistan. The research aimed to examine the relationship between the different macroeconomic and governance variables and economic growth by providing evidence from Pakistan by using the ARDL approach over the extended time period of 1996 to 2022 against secondary data.Considering the trends throughout the time period 1996 to 2022 strong positive relationship found between political stability and Exchange rate was found which signifies that Political stability increase the Remittances in the country. There is strong association found between GDP and remittances. The relationship between governance and un-employment found strong which indicate that strong governance is necessary for improving un-employment rate. findings by applying ARDLeconometric model that there exists a statistically significant and positive long-term cointegration between the EXR and GDP as 0.04 < 005. This implies that an increase of one unit in the exchange rate will result in an increase in the GDP by 1.57 units over the long run. The variable GDP has also maintained a statistically significant and positive long-term cointegration with its lagged values GDP (-1) as 0.00 < 005. There also exists a statistically significant and negative long-term cointegration between the PSTB and GDP as 0.04 < 005. Due to change in political setup growth is negatively effecting since political system in Pakistan is unstable. Nonetheless, the study does not find any long-term cointegration between GDP and REMT Likewise, the study also does not find any long-term cointegration between GDP and UEMP. The research findings help to illuminate the complex interconnections between various economic indicators and Pakistan’s economy. On the one hand, remittances are quite beneficial for economic growth, while the influence of exchange rates, in addition to political stability, tends to be more complicated. Study reveals that Political stability, Effective governance and good Laws are significant factors that affects the economic growth.