Price Instability, Unemployment and Economic Growth in Pakistan

Abstract

Pakistan is a front ally of war on terror and is playing a substantial role in controlling terror attacks all over the world. Due to this unintended war, allocation of developmental funds with in the country has been disturbed and even Pakistan has to approach IMF (International Monetary Fund) to restore its economy in November 2008. Due to it, a new phase of unrest in the country has created a massive frustration among the general public. Even the availability of basic utilities like power, gas and water has become deficient. In this environment, there is no question of any new investment by local or foreign investors. More significantly, the current government is not serious in solving the problems of deprived people of Pakistan which has amplified the gravity of economic and social problems like unemployment, hyper inflation and low economic growth. There are mere slogans of developments by the government officials.

The current research highlights three major icons of the economy; inflation, unemployment and economic growth and their interrelationships, which have severely affected by the war on terror. This research focuses on the impact of price instability on unemployment and economic growth. To achieve this objective, certain economic and social variables have been selected which includes Inflation (CPI), volume of Imports, volume of exports, balance of trade, GDP growth, agriculture growth rate, share of large scale manufacturing in GDP, services sector contribution in GDP, health expenditure as percentage of GDP, education expenditures as percentage of GDP, gross fixed capital formation by public & private sector, foreign direct investment and total consumption in the country. The data period covers from 1980 to 2008. Econometric models have been constructed to identify main effects of price instability on unemployment and economic growth. Proposed results are in favor of negative relations between price instability and economic growth but positive relation with unemployment.