Economic Growth Determinants in Pakistan: An Empirical Analysis Using ARDL Model

Abstract

The objective of this study is to examine the determinants that affect Pakistan’s economic growth. The study examines the causal relationship between economic determinants and growth from 1972 to 2021. Key determinants in the model include physical capital stock, employed labour force, bank credit, human capital, exports, and imports. Autoregressive Distributed Lag (ARDL) model was used to fulfil the research objectives. The study found long-term co-integration between the variables. Both physical capital and human capital were found to be statistically significant, positively affecting economic growth. Thus, both are complimentary to economic growth rather than substitutes. The study noted that employed labour force, bank credit, exports, and imports did not affect economic expansion. It suggests that neither import substitution nor export promotion is effective in achieving sustainable growth in the period of study. Furthermore, an increase in the employed labour force is not sufficient for economic growth after controlling for the effect of human capital. Results suggest that improvement in infrastructure and human capital productivity are essential to achieve sustainable growth.