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Theoretical and Applied Economics
No. 2 / 2023 (635), Summer

Effect of inflation on the growth and development of the Pakistan economy: An empirical analysis

Tom JACOB
Christ College, Irinjalakuda, Kerala, India
Raphael RINCY
Sri Ramakrishna Engineering College, Coimbatore, Tamil Nadu, India
V.S. AJINA
Christ College, Irinjalakuda, Kerala, India

Abstract. High and sustained economic growth with low inflation is the central objective of the macroeconomic policy makers. Therefore, inflation has been one of the most researched topics in macroeconomics for the last many years because it has serious implications for GDP growth and performance. The main aim of this empirical study to examined the relationship between inflation and Gross Domestic Product performance in Pakistan by using time series data from 2000 to 2022. The major purpose of this study is to examine the existence of inflation- growth relationship in the economy of Pakistan and to analyse the impact of inflation on GDP growth of the economy. Augmented Dickey Fuller Unit Root Test is employed to check the unit root of the time series and Auto Regressive Distributive Lag (ARDL) technique is used to estimate the long run and short run impact of inflation in the economic growth of Pakistan. The present study uses Inflation as an independent variable and Gross Domestic Product is the dependent variable. The ultimate purpose of the study is find out long-term and short term relationships between these variables and investigate the effect of Inflation over Pakistan economic growth.

A negative and significant inflation growth relationship has been found to be existed in the economy of Pakistan. The results of the study show that prevailing inflation is harmful to the GDP growth of the economy after a certain threshold level. On the basis of the descriptive and econometric analysis, this research study suggest to the policy makers and the State Bank of Pakistan to restrict the inflation in minimum level and to keep it stable. So that it may exert its positive effects on economic growth of the economy. Pakistan must need inflation but in single digit of inflation stimulate the economic growth.

Keywords: CPI, GDP, AIC, ARDL.

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