Impact of Inflation and Unemployment on Economic Growth of Pakistan

Abstract

This paper aims to identify the influence of inflation and unemployment on the economic growth of the country. This study recommends some essential policies about unemployment and inflation in the economic growth of Pakistan. In this study, the “Ordinary Least Square (OLS)” method is used with different diagnostic tests for determining the fitness of data for the investigation; and the data is collected from 1980 to 2018. The econometric results suggest that the time series is stationary because the values of t-statistic are more than t-tab and sig value is also significant. The error term on ADF is significant and that ensures that there is long term association. The results of ECM indicate that inflation and unemployment are away from the value of equilibrium. The results of multiple linear regression models indicate that inflation and unemployment are statistically insignificant, and the overall model is also statistically insignificant. There is no multicollinearity and there is no heteroscedasticity as per White test. By running the Ramsay Reset test, the researcher concludes that the model is not specified because the sig value of the t-test and f-test is significant.