Analysis of GDP and Macroeconomic Variables on Economic Growth of Pakistan

Abstract

GDP represents the economic growth of a country. Higher GDP growth is translated as higher economic growth. In case of Pakistan, the GDP is continuously going down due to some macroeconomic factors. This is an alarming situation for the Pakistani government. The main ambition of this study is to interrogate the four selected independent variables which impact on the GDP of a country and verify if the relation holds in Pakistan. This study expects to ascertain the effects on GDP performance in short or long run of inflation, unemployment, foreign direct investment and import prices of goods and services. It utilizes the data of the last 30 years for the Pakistani Economy i.e. the period of 1983 to 2012. Several statistical techniques have been applied. Five SEM models were used to estimate causal relationships. The outcome of this research suggests that the government needs to pay attention (1) to the control of inflation through effective and efficient monetary policy, (2) to increase employment chances by the supporting and establishing new industries and (3) advancing infrastructure. Government of Pakistan should also support Pakistani export in order to decrease heavy import prices and always encourage foreign direct investments. These outcomes will be helpful in managing the economic growth rate of Pakistan.Keywords: Gross Domestic Product, Unemployment, Foreign Direct Investment, Import/ Export, Inflation.