The economical condition of pakistan economics essay



1. 1. Introduction:

The economical condition of Pakistan from last three to four decades is instable due to war and terror situation. That is why negative effect of economy and prices are not stable. Government failed to make a proper any economy policy to improve their price level and other problem to solve. Economical instability, energy crises, high unemployment, low exports, low foreign exchange reserves, low income level and other social, economic and political issues. All these problem have direct effect on business activity, instable price level and economic growth. If analyzed past situation of price instability and the trend of gross domestic production in Pakistan then very fluctuation in past period. Pakistan independence in 1947 and economically condition was very critical price are unstable, unemployment, lack of infrastructure and other social and economic problems. In 1947 to 1952 average growth rate was 3 percent in Pakistan. In1960s inflation rate single digit was 1. 64 percent and growth of GDP 5. 8percent. Though, it very well performed economy. In Pakistan during 1965s, the Pak and India war over Kashmir also effect the economy. In1970strend was same almost. The growth of GDP was decrease 11. 3percentdue to separation East Pakistan in 1971 but the inflation rate 4. 7percent remains same, constant. In 1973 GDP growth rate 7. 06percent was five percent decrease, and inflation rate was increase double digits 23. 1 percent because Bhutto nationalized the private sector and investment only 15percentfor private sector. During 1980s Zia -ul -haq favorer of privatization was carried out steadily and the growth rate of GDP was10. 2percent and inflation rate was11. 9 percent. Different governments and two elected prime ministers during 1988-99. High budget deficit in 1992-9then International Monetary Fund (IMF) provide the loan to reduced defense expenditures, improved tax collection methods and inflation rate ranged between 9. 1percent to 12. 4 percent high rate of inflation, increased the price instability and low economic growth. In 1997s, food and nonfood product are effected to high increased inflation rate 11. 6 percent and 10. 3percent. In 2001after September 11incident, economically condition of world absolutely changed and growth rate of GDP, price level and inflation was effected. In 2005-06 inflation and growth rate of GDP was average. Last two three years high inflation trend in Pakistan and negative effect on economic growth and unstable price level. The factors leading to high levels of price instability include deficit financing, decrease in foreign remittances, dependency of economy of foreign economic assistance, terrorism, increase in wages, high price of imported goods, devaluation of rupee, decrease foreign direct investment , large scale manufacturing industry, effect imports exports and balance of trade etc. High inflation is always correlated with increased price instability, which can lead to uncertainty about the future profitability of investment projects. It will, ultimately, leads to lower levels of investment and economic growth. The significant of study is to explore the reasons that caused increasing the current price level and its direct effect on economic growth. Problem definition can be defined as the gap between existing and ideal or desired situation. According to research question of this study is; ” How price instability have an effect on economic growth in Pakistan?” Objectives are very important for research work. Objective help to achieve the goal and aim of research work. The objective of the study is to find out the factors, which can affect the depended (economic growth) and independent variables (inflation, investment, Govt expenditure population, and net exports). Also, find out the relationship of price instability and economic growth. Achieve their objective for using different techniques and methods. To analyze the impact of price instability on economic growth in Pakistan. To analyze the importance of objectives. To analyzed how much impact of price instability and economics growth in Pakistan. To analyzed relationship between prices instability and economic growth. To achieve these research objectives, for using the econometric techniques and developed the model to check the impact of prices instability on economic growth. Conduct the hypothesis to achieve the objective. Prices instability has been measured through inflation and applied the Co-integrating Vector and Vector Error Correction Model (VECM) whit the help of E-views software.

2. 2. 1. F-Test:

Ho: β0= β1= β2= β3= β4= 0

The Null hypothesis shows that there is no impact of all variables on economic growth.

H1: β0≠β1≠β2≠β3≠β4≠0

The alternative hypothesis shows that there is impact of all variables on economic growth.

2. 2. 2. T-Test: (hypothesis)

Ho: β1= 0 there is no impact of investment on economic growth. H1: β1≠0 there is impact of investment on economic growth. Ho: β2= 0 there is no impact of inflation (as percent of GDP) on economic growth. H1: β2≠0 there is impact of inflation (as percent of GDP) on economic growth. Ho: β3= 0 there is no impact of Net export (as percent of GDP) on economic growth. H1: β3≠0 there is impact of Net export (as percent of GDP) on economic growth. Ho: β4= 0 there is no impact of population growth rate on economic growth. H1: β4≠0 there is impact of population growth rate on economic growth. Ho: β5= 0 there is no impact of Govt expenditure on economic growth. H1: β5≠0 there is impact of Govt expenditure on economic growth. Current research is organized as follows. Chapter 1 consists of Introduction, Significance, and Objective of research. Chapter 2 Review of literature. Chapter 3 the structure and trend. Chapter 4 data reports, methodology of research. Chapter 5 Empirical results and discussion. Chapter 6 conclusion and policy recommendation . And last references.

Chapter 2

Review of Literature is exceptionally vital for exploration its given speculative based and nature of examination work. For this reason numerous studies have been put forth on the issue of value precariousness and monetary development in Pakistan. The vast majority of this examination subject has been finished by national and globally. Evaluated of certain articles are paramount experimental studies to improve the destinations in the setting of Pakistan. Review of Literature is very important for research it’s provided theoretical based and nature of research work. For this purpose many studies have been presented on the issue of price instability and economic growth in Pakistan. Most of this research topic has been done by national and internationally. Reviewed of some articles are important empirical studies to develop the objectives in the context of Pakistan. Therefore, keeping in view the essentialness of written works related to research point, the written works was reviewed regarding the examination of value unsteadiness and financial development at national and also at global level. The written works concerning the determinants of value was additionally surveyed in the examination study. The value precariousness was a critical determinant of investment in the light of exact findings of various examination studies. Fischer (1993) examined that the cross-sectional and board information relapses for 1961-88results show that swelling decreases development by diminishing transaction and profit development. Further notes that, flat swelling and minor monetary shortages are not fundamental for towering development even over long periods; moreover, elevated expansion is not reliable with continued with financial development. Motley (1994) examined that the inflation also affect investment and saving decisions. High inflation reduced the growth of GDP constant to investment level and less accumulated human and physical capital in the economy. High inflation in the economy then rate of return on investment decreased. May causes that the investor and saver to be less willing to invest in projects. Barro(1995) analyzed that the effect on price instability and economic growth for data used examined 100 countries from 1960to 1990. It applied regression and results show significance effect on explanatory variables. If increased in inflation 10 percentage per year reduced of the growth rate of per capita GDP by 0. 2- 0. 3 percentage per year and reduced the ratio of investment to GDP by 0. 4percent. Statically significant results highlighted when high inflation reduced GDP and negative impact on economic growth and price level. Sarel (1996) examined on GDP, buyer cost files, terms of exchange, population, genuine trade rates, legislature uses and contribution rates. A joint board database was handled joining consistent yearly information from 87 nations, throughout the time of 1970-1990. The experimental findings give proof of the being of a structural break that is critical. The break is assessed to happen when the expansion rate is 8percent. Estimation result effect of swelling on development rate is noteworthy. GDP, purchaser cost records, terms of exchange, legitimate trade rates, administration consumptions and venture rates. A joint board database was processed consolidating consistent twelve-month information from 87 nations, throughout the time of 1970-1990. The experimental findings furnish proof of the being of a structural break that is huge. The break is assessed to happen when the swelling rate is 8percent. Estimation result effect of swelling on development rate is noteworthy. Xiaobin . z (1996) analyzed that the high economic growth compounded with high inflation in Chinese economy. Analyzed the data form period 1985 -95 and results significant show that the high inflation generate d by over investment, low growth of GDP and not beneficial for development. Nell (2000) examined that the inflation is always harmful to growth use the data for period 1960-1999 in South Africa economies. For this purpose conduct a model and chose a variables. Vector Auto Regressive (VAR) technique applied in the model and results show that inflation was single digit beneficial for economic growth and inflation double digit was harmful for economy because slow economic growth. Liu and Adedeji (2000) investigated that the major determinants of expansion in the Islamic Republic of Iran. Time sequence information had been browsed 1989-99 for this study. The creators had connected Johansen co-combination test and Vector Error Correction Model (VECM) to test the effects. The dissection had recognized that slack worth of cash supply, fiscal development, four years past needed rate of swelling was absolutely committed towards expansion while two years past worth of trade premium was negatively related with expansion. Chowdhury (2001) examined that the connection between swelling and GDP development for four South Asian nations (Pakistan, India, Bangladesh and Sri-Lanka). Used the information for period 1960-89 and blunder rectification connected in the model. Results demonstrate that the huge association between expansion and monetary development for each of the four nations. Khan and Senhadji (2001) calculated that the threshold1 level for both the advancing, incorporating Pakistan, and advanced economies. This studies utilization board information for 140 improving nations and advanced economies for the period 1960 to 1997 and limit levels, 3percent and 7percent, for both aggregation of nations severally. Thoursie (2002) examined that the heightened expansion sway on GDP development rate and gathered the yearly information for period 1960-1995from 115 nations. Time –specific stun and heterogeneity strategies connected in the exogenous and endogenous variables. Result critical show that the expansion was hurtful to the development of GDP and negative correspondence between heightened cost (swelling) and development rate. Rousseau and Wachtel (2002) examined that there is negative connection between costs flimsiness and investment development and recognized association between fiscal growth, cost insecurity and budgetary development. The study show that the triangle of connection between monetary improvement, cost unsteadiness and financial development with the information from 84 nations coating the time of investigation from 1960 to 1995. Account and monetary development association is stronger than cost shakiness and financial development. Sweidan (2004) examined that the association between cost insecurity and budgetary development for economy of Jordan in 1999 and discovers a structural break indicate at 2 percent level of swelling. The study is to check the impact of swelling lack of determination on the development and advancements in the economy. The effect suggests that the impacts of expansion on development are stronger as contrasted with the impacts of swelling questionable matter and variability. Gokal and Hanif (2004) examined numerous diverse investment speculations to improve accord on the swelling and budgetary development connection for the economy of Fiji in 2003. The effects show that a frail negative association exists between costs shakiness and monetary development, while the change in yield crevice focuses on. The causality between the two variables is restricted from GDP development to cost instable. Minli (2005) examined the relationship between inflation and economic explain by using data for 90 developing countries and 28 developed countries over the period 1961-2004. The  proof powerfully supports the read that theconnection between inflation and economic process isnonlinear. Mubarik (2005) calculated the threshold level of climbing costs in Pakistan utilizing yearly information for the period 1973 to 2000. The experimental comes about because of the study infer 9 percent limit level of expansion for the economy of Pakistan, above which swelling is extremely unfavorable for monetary development. Suberive (2006) examined the impact of international price instability on the aggregate supply, taking account which features of infrastructure, price instability, and financial changing. The study examined the sample of 25 countries during the period 1961to 2002. Results highlight that there is a negative effect of international price instability on aggregate supply. Moreover, they show that high price instable, low infrastructure and less developed financial system contribute to reinforce this effect. Chaturvediand Kumar (2008) discussed interrelation between inflation, economic growth and saving rate for South East and South Asia countries in 1992. The relationship between saving rates and economic growth has found positive, inflation has positive outcome on saving rate and considerably negatively effect on economic growth this research show that at lower rate of price instable relationship is positive but rising price describes negative impact on economic growth.-term thresholds of 2 percent for industrial and 12 percent for non-industrial countries, in that organize. The study however, indicates that below these thresholds the results of inflation on growth area unit considerablypositive. Lebanon, (2009) examined that the relationship between inflation and economic growth in the U. S. A country. Two Stage least Square (2SLS) estimation technique used in the model. Statically significant results show that the inverse relationship between inflation and economic growth in U. S. A. country expectation-augmented Philips curve was not eliminating the inverse relationship between High inflation and economic growth. Hasanov(2010)examined that the threshold effect of inflation on economic growth over the period of 2000-09. Estimated threshold model indicate that there is a non-linear relationship between economic growth and price instability. Below threshold level inflation has statistically significant positive effect on GDP growth, but this positive relationship negative one get when rising price 13 percent. Ayyub. M (2011) investigated that the impact of price instability on GDP growth of the economy of Pakistan. Furthermost, to investigate it promotes or damages the economic growth in a uniform direction or it behaves otherwise below different levels. Annual time-series data for the period 1973 to 2010 have been taken results show that thee exist relationship between price and economic growth. Inflation is abusive to the GDP growth of the economy after a particular threshold level. Yasin (2011) examined that the investment and supply stated determinants of extension in Pakistan. For that excuse for why time succession qualified data for the period from 1970-2010 were used. Long run and short run checks had been investigated used Johansen Co-consolidation and Vector Error Correction approached. Causal companionships had been viewed used Granger causality test. The long run influence on purchaser expense record had been came across to be positively affected with money supply, gross trained thing, imports and organization utilizes on the other side governing body salary was decreasing usually vocalizing cost level in Pakistan. Long run adaptability of Price level concerning money supply, gross down home headline, council depletions, management livelihood and imports are 0. 61, 0. 73, 0. 32,-1. 37 and 0. 41 independently. In the short run, Improvement in gross tamed quality and council employmentsJavedet al (2012) analyzed that the impact of investment to GDP ratio, openness trade , term of trade, imports to GDP ratio , exports to GDP ratio and rising price on the economic growth in case study of Pakistan. The study conducts the time series data from period 1973-2010. applied the Chow test was used to test the model fitness and structural break. Results show that the impact of rising price has significant and positive impact on the economic growth of Pakistan . If increased in the price of raw materials, output, employment and production of the country was boosted of Pakistan. Inflation in the economy then exports product increased and the imports product decreased. It conclude that the international trade was important role played in the Pakistan economy. Summarizing the literature of review conclude that the negative impact of price instability on economic growth. Literature at national and international level for the analysis of the impact of prices instability on economic growth. As a result, the literature survey has provided help to develop the theoretical framework and to formulate a number of hypotheses that were tested in the present research study. Testability and reliability of the findings of this research about the economic determinants of price instability on economic growth in Pakistan provided comparison with other studies elsewhere. The different results based upon the types of data and econometric techniques used were drawn by different researchers. To analyzed the diverse studies have plainly say that converse impact of value unsteadiness on financial development in Pakistan.[Chowdhury (2001), Khan and Senhadji (2001) and Ayyub. M (2011)]


3. Introduction:

Time-series graphs and tables show the variable’s level, direction of change, speed of change, and trend, which is its general tendency to rise or fall. In this section discuss the structure and trend of price instability, inflation and economic growth in Pakistan. This section examines the historical trends of price instability and GDP growth rate during the mention period 1970-12. This section examines the historical trends of price instability and GDP growth rate during the mention period. A main number of variations have been determined in price instable and GDP growth rate for the economy of Pakistan during the period 1970 to 2010. The growth rate and inflation mentioned in the table 3. 1According to table 3. 1 a trend of inflation is very volatile it is ranging from 5. 3percentto 11. 3 percent within1970 year of analysis. In 1974 the inflation is 26. 7 percent is too much high and GDP was 3. 5 percent which were low because the East Pakistan war and Bangladesh separate from Pakistan. Comparatively, the trend in economic growth consistent except 1980 where economic growth 10. 2 percent and inflation rate 11. 9percent. Overall the trend show that the inflation increases and economic growth decreasesWhen we consider price instable and economic growth we find that, the trend of inflation is very volatile and it is ranging from 3. 5percentto 12. 4 percent with in15 years. Comparatively, It shows the negatively relation between inflation and economic growth. In 1991 inflation is 11. 8 percent and economic growth is5. 1 percent. In 1995inflation increase up to 12. 3 percent and economic growth rapidly decrease to 4. 9percent. If the prices instability in the economy, economic growth follows the negative effects. According to the table 3. 3, as inflation goes up to11. 4percentin 1997then it has negative impact on economic growth. In 2008 inflation rate increasesfrom7 . 6 percent to 20. 3 percent which has negative impact on economic growth. The main reason behind this price instability is the shortage of supply of goods in the market which does not meet the desire demand. Another reason is severe shortage of electricity in numerousindustriesthat havenegativeimpacton economic process inIslamic Republic of Pakistan. When the demands are not satisfied domestically consumer and producer then government imports the goods and commodities, which makes a rising price and lower the economic growth. The trends presented in figure4. 1 show that Increase the swelling rate then decrease the gross family unit headline. Most amazing Gross private thing infrastructure rate 7. 7 percent had been determined all through the money related years 2005. Its exhibit that the level GDP infrastructure rate remained 1. 6 percent all through Fiscal year 2008 whit very towering development rate of 20. 3 percent. This situation portrays that development and Gross neighborhood headline improvement rate are having negative coordination whit each other. This situation depicts that extension and GDP growth rates are having negative friendship with each one in turn.

Chapter 4

Data and Methodology:

4. 1. Introduction:

In this chapter discuss the methodology used determinant the impact of price instability on economic growth. This chapter also discusses study design, choice of variables and used the techniques . The relationship among variables has been analyzed with the help of constructing the econometrics models. In this study, choose the main variables are real GDP growth rate, investment growth rate, inflation rate (as% of GDP), net exports (as % of GDP), population growth rate and Govt expenditure. Real Gross Domestic Product (RGDP) measure as the value of RGDP multiplied by total real GDP and divided by 100. Investment growth rate is measure (such as housing, retail inventory, structures and capital). Inflation rate as measured by the consumer price index reflects the annual percentage change in the cost to the average consumer of acquiring a basket of goods and services that may be fixed or changed at specified intervals such as yearly. Generally used Laspeyres formula. Govt expenditure (military equipment and official salaries, for instance and net export (export-import) multiple by GDP. Investment benefits are in terms of increased value added, reduced cost, larger production and higher competitiveness, the ultimate effect of investment is improvement in gross domestic product. Many investors invest in that economy whose interest rate payments are evidencing healthy position and it creates positive effect on the economic growth. [Hayat (2009) and Mubarik (2005)]

Inflation rate:

Inflation rate become high then consumer expenditure increase and purchasing power decrease and prices of goods are very high. All this process consumer purchasing power decrease. Inflation rate has the negative impact on GDP. [Barro(1995), Mubarik (2005), and Ayyub. M (2011)]

Net export:

Imports have negative effect on economic growth because there is outflow of money. If a country prefers to import finish goods then there are two main losses for the economy system, one is leakage of money and the other is harmful of local industry. Exports have the positive impact on GDP growth. When exports commodities are increase, unemployment decline and the purchasing power of peoples increase. This situation high the living standard of population and GDP growth. [Barro (1995)and Hayat(2009)]High prices mean that people have to more pay for the same commodities. If high income level at a lower rate as a price instable, the standard of living fall even if one makes more. So it is the based reason of affecting economy growth and people of the country poor. Population negative effect on economic growth.[Sarel (1996), Mubarik (2005) and Ayyub. M (2011)]

Govt expenditure:

The increases in govt expenditure on public sector cause Increases in manufacturing and decrease the unemployment. The effect on GDP of Govt expenditure is positive.[Sarel (1996), Yasin(2011) andAyyub. M (2011)]This research expresses the relationship between prices instability and economic growth. To achieve this objective a regression equation has been developed to see the impact of price instability on economic growth in Pakistan.

4. 3. Methodology:

After describe the variables then model construct as: Y= f (INVG, INF, NX, POPG, GE)

Y= βο+β1INVG+β2INF+β3NX+β4POPG+β5GE+εi

The rationality and variables for the present study have been picked keeping in view their relative imperativeness on theoretical and test establishment. It is furthermore attempted to consolidate the variables which usually resolve the level and rate of advancement in the economy of Pakistan. The choice of variables is insightful with the choice made by distinctive investigators [Khan and Senhadji,(2001), Mubarik (2005), Hayat (2009), Hasanov (2010), Ayyub. M (2011) and Yasin (2011)]. Price instability has been measure through inflation. First applying the unit root test for check the data is stationary or not stationary and check the relationship between depended and independent variables through correlation matrixes for using computer software of E-views. If the data is stationary at level then apply the Ordinary Least Squares (OLS) and data is stationary at 1st order difference then applied the Johansen Co-integration Technique and Vector Error Correction Mode (VECM). Use computer software of Eveiws for estimating the model. Regression errors in equations of these models have been tested for autocorrelation with the help of Durban Watson (DW) test statistic.

Chapter 5

Unit root test is utilized to check if information is stationary. A methodology is stated to be stationary in the event that its likeliness appropriation remains unchanged as time returns and we can state that information era process does not altered. To test the unit root most broadly utilized test is Augmented Dickey Fuller (ADF) test. The general manifestation of ADF test could be composed at level and first difference structure as follows. Xt= αXt-1+t-1 t +t (1)Xt= αX t-1+t-1 t +t(2)In Table 5. 1 Null Hypothesis of unit root against alternative of stationary is tested. Results reveals that every last one of the variables are non- stationary at level so the invalid speculation of unit root at level would not be able to be dismissed. Notwithstanding, from the beginning distinction invalid speculation of unit root is dismissed for every last one of the variables and every one of the variables are I (1). Given that time series are usually unstable price and economic growth and their instabilities bring about outbreak of spurious regression in experimental studies, hence, reliability of variables have been tested through the use of Augmented Dickey-Fuller (ADF) Unit Root Test. Summary of Augmented Dickey-Fuller (ADF) Unit Root Test results have been shown in Table 5. 1. 1 as follows: This table 5. 1. 1 the result show that the Augmented Dickey fuller (ADF) Unit Root Test all variables like real GDP(RGDP), investment (as % of GDP) (INVG), inflation(INF), population growth rate (POPG), Net export(NX) and government Expenditure (GE) are stationary at first -order difference (in1%level) . Then apply the Co-integration and Vector Error Correction Model (VECM).

5. 2. Econometric Analysis:

Estimated of the model to analyze the impact of price instability on economic growth in Pakistan. For this purpose, annual data for the period 1970-2012 are collected. The co-integrationregression technique is apply in the model .

5. 3. Co-integration Analysis

5. 3. 1: Introduction:

The fundamental thought underlying the notion of co-integration was to distinguish the balance or a long run association around the variables. For example, if progression of the variables Y t and X t were stationary following differencing once i. e. I (1) and blunder term u t from the co-joining relapses was stationary, i. e. I (0), then the sequence Y t and X t were co-coordinated of request I (1, 0), (Johansen and Juselius 1995). As of now co-combining equation write wasY t = α + βX t + u t(1)Provided that the sequence Yt and Xt were both I (1) and the failure term ut was I (0), then the progression Yt and Xt were co-mixed of request I (1, 0). In mathematical statement (1), β measures the harmony association between the progression Yt and Xt and ut was the flight from the long-run balance way. In different expressions, the sequence of no less than two variables were co-reconciled if a straight mix of the proposed variables existed which was mixed to a request easier than unique variables. The vector of co-integration represented a stationary linear combination of non-stationary variables. There might be more than one co-integrating vectors of the relevant variables used in the research. In other words, the series of at least two variables of the same order has at least one co-integrating vector if a linear combination of these variables existed, which was integrated to an order lower than individual variables (Johansen and Juselius, 1990). Therefore, it was necessary to test the presence of co-integration and to determine the number of co-integrating vectors among the series used in the price instability on economic growth. This study has discovered the number of co-integrated mathematical statements utilizing follow statistics. Consistent with probabilities given in tables 5. 3. 3 the dissection rejects the invalid theory that there is no co-joined vector (None). There is at for the most part 1 co-combined vector (At above all 1), there is at for the most part 2 co-incorporated vectors (At overwhelmingly 2). It indicates that there are 3 co-coordinated vectors in long run results. It demonstrates towering cooperation between logical and subordinate variables utilized within current study. In this table 5. 3. 4 show remarkable relationship can be observed between price instability and economic growth in Pakistan. In other words, changes in price instability indicators will be associated with the increase (decrease) of economic growth in the long run. On the other hand, increase in investment ratio to GDP and net export has positive effect on the economic growth while population growth rate and inflation has negative effect on the economic growth. These results confirm the vital and significant contribution impact of price instability on economic growth. Inflation is having negative and significant impact on economic growth keeping all the other variables constant. It will be raised by 1percent real GDP will decrease by1. 68 percent on the average in the long run. Investment is having positive and significant impact on economic growth keeping all the other variables constant. It will be raised by 10 percent real GDP will increase by1. 63 percent on the average in the long run. Net export is having positive and significant impact on economic growth keeping all other variables are constant. It will be raised by 1 percent real GDP will increase by1. 38 percent on the average in the long run. Populations are having negative and significant impact on economic growth keeping all other variables are constant. It will be raised by 5 percent real GDP will decrease by16. 07 percent on the average in the long run. Govt expenditure is having positive but insignificant impact on economic growth keeping all other variables constant. The short run relationships among the variables in the price instability model are estimated using the Vector Error Correction Model (VECM). The short run relationships among the variables are captured by taking the first difference of the variables included in the model. The results of the error correction mechanism are reported in Table 6. 4. 1. The first difference of real GDP is the dependent variable with the first difference of some selected explanatory variables in Pakistan. In this Table 5. 4. 1. Showthe short run results using vector error correction model (VECM). The most essential object in the short run results is speed of similarity term. It exhibits that what product time may be taken by the economy to land at long run agreement. Negative evidence of velocity of change term exhibits that the economy will unite towards long run equalize taking after taking 5percent yearly modifications in the short run on the other hand; the worth of coefficient is statistically basics. The results show that estimated lagged error correction term is positive and significant suggesting error correction is happening in the model. Depending on if there a long run association between distinctive variables exists then a lapse adjustment process is moreover happening. Blunder remedy model demonstrates the rate of conformity towards the long run balance after a short run stun. The real GDP 10 percent significant and (0. 01. 9) not reverse adjustment. The inflation is 10 percent significant and (-0. 0445). The investment (as %of GDP) is 10 percent significant and (-0. 045) reverse adjustment. The net export is 10 percent significant and (0. 077) reverse adjustment. The population rate is 1 percent significant and (-0. 0056) reverse adjustment. And Govt expenditure is 10 percent significant and (-0. 1406) percent reverse adjustment. R square value is (0. 81) percent less variation in error term. The ordinary least square (OLS) assumption that the variance of the error term is uncorrelated with the independent variables. This assumption does not hold then the hetrosedarsticity problem arises in the model. The in table 5. 5. 1White Heteroskedasticity Test is based on significant probability values less than 0. 05. This shows that inflation, investment, govt expenditure, population, and net export significantly affect the real gross domestic product. H0: ό= 0 (no hetro)H1: ό≠0 (hetro)In this table the value of probability is 0. 66 is greater than 0. 05 it show that can be accept null hypothesis there is no hetro. The value of R-square is 0. 91 percent it show that the less variation in error term.  The value of   F-statistic (7. 76) shows the overall impact of all variables. The value of Durbin-Watson stat is 1. 93 shows that there is no auto correlation in the model.

Chapter 6

In this research, the impacts of price instability on economic growth in Pakistan are discussed. Current situation in Pakistan have been faced many social, economic and political problems in which unemployment , inflation , corruption, high poverty rate, low health facilities,  high price instability, unemployment, low economic growth, political issues.  Govt have failed to make any policy to control the price instability and inflation. Econometrics model have been developed to achieve objectives and variables are selected to analysis. The variables which have been choose for analysis are inflation (INF), Investment as percent of GDP (INVG), population growth rate (POPG), Net Export(NX) and Govt Expenditure(GE). Used a large sample of data from 1970 to 2012. The important result of this research is in the favor of negative relationship between price instability and economic growth. These results are also support by Khan and Senhadji(2001)Yasin(2011) results in which have applied an econometric techniques to analyze the relationship between price instability and economic growth and strong negative impact of price instability on economic growth has been derived. The main reason behind this research negative relation is that as inflation increase, purchasing power of consumers decrease then the consumption level decreases because the value of money will be reduce to change in the price level . when the consumption level reduce Real GDP also decreases. The estimated regression result based on the t-statistic value between real Gross Domestic product and inflation is 3. 69, which shows that the price instability has significant impact on the real GDP growth and there is negative relationship between price instability and economic growth. On the bases of research work, the recommendation is to keep lowering inflation is conducive to improved growth performance. The goal has become one of bringing inflation down to single digits, orclose to single digits, and keeping it there. There for, State bank of Pakistan (SBP) and the strategy producer of Pakistan must be center on those alternatives which remain swelling rate stable and underneath the level which is accommodating for the livable monetary development. Stable expansion is extremely supportive to minimize the doubts and change in the money related division of economy. Which in place expand the capital qualified information actions in the nation. It might create positive effect on economy. The level of costs steadiness could be looked after. This is best approach to stable the investment development of the economy