ROLE OF FISCAL AND MONETARY POLICY IN GROWTH AND EMPLOYMENT GENERATION IN PAKISTAN

THIS DISSERTATION IS SUBMITTED TO THE DEPARTMENT OF ECONOMICS IN PARTIAL FULLFILLMENT OF THE REQUIREMENT FOR THE DEGREE OF MASTER IN ECONOMICS

Submitted By: Muhammad Bilal ROLL NO. 11 SESSION 2011-2013

Supervisor: Dr. Abdul Ghafoor Awan

DEPARTMENT OF ECONOMICS

INSTITUTE OF SOUTHERN PUNJAB. (MULTAN) ii .

wisdom.Dedication This Assignment is dedicated to My Respected Teacher Who has supported me all the way With her knowledge. iii . And guidance. I would not have the goals I have to strive and Be the best to reach.

DECLARATION I solemnly declare that this research work is written by me in partial fulfillment for the degree of M.Sc in Economics and it is free from plagiarism. 11 DEPARTMENT OF ECONOMICS INSTITUTE OF SOUTHERN PUNJAB. (MULTAN CAMPUS) iv . Muhammad Bilal ROLL NO.

Sc in economics. Supervisor Chairman External Examiner v .CERTIFICATE This thesis "Role of fiscal and monetary policy in growth and employment generation in Pakistan" by Muhammad Bilal is accepted in its present form by the Department of Economics as satisfying the thesis requirement for the degree of M.

who extended his sincere cooperation and invigorating encouragement during the course of present study. I would also like to thanks my loving and sweet Friends and brother for their encouragement. Mam.ACKNOWLEDGEMENT All humble words of profoundest thanks are due to ALLAH Almighty the compassionate and the merciful Who blessed me determination. All praise is for the Holy prophet Hazrat Muhammad (SAW) Who brought the message of peace and happiness to all creatures. Rabia Hanif. I deem it may utmost pleasure to avail myself this opportunity in recording my deep feelings of regards and sense of gratitude to my great supervisor. I wish to express my sincere thanks to my valued teachers (Muhammad Shahid Iqbal. Kiran Kousar. Afshan Saeed) for their invaluable educational guidance and devotion during course work and accommodating behavior during research work. potential and ability to complete this work successfully within the stipulated time. Dr Abdul Ghafoor Awan department of Economics. Muhammad Bilal vi . Mam. spiritual and intellectual inspirations who have always wish to see me glittering high on the skies of success and whose hands always rise in prayers for my success. Mam. immense horizons. mellifluous moral support. and patience. I express love and appreciation to my family for their never ending love and extended cooperation. Adnan Akbar.

The findings show that total government expenditures are negatively related to employment level in the economy.g. Secondly focus of the government should be on widening the tax base by expanding the net of direct tax payers. The reason behind the negative relation between total government expenditures or revenues and employment are that by imposing more taxes on business community government will reduce the investment and saving in the economy which will employment in the economy. vii .g. For empirical investigation OLS (ordinary least square) and log liner model is employed to find short run and long run association. while money supply is found to be positively related with employment. infrastructure building and in power sector which will create employment and boost up economic growth. The data is used for the period of 1972-2009.ABSTRACT The main purpose of the study is to find out the Role of fiscal and monetary policy on growth and employment generation in Pakistan. On the other hand total labor force and money supply are found to be positively related with economic growth of the economy while government expenditures have negative and significant impact on economic growth the reason behind is that most of the government expenditures are non-development expenditures e. The authors recommendations includes among others the following: firstly government should control the non-development expenditures and convert these released resources for development purposes e. Lastly state bank should start micro finance scheme so that it will encourage self-employment scheme. Thirdly government should provide tax concession to the investors so that capital outflow can be controlled and in this way employment opportunities will increase. defense expenditures which discourage economic growth in the economy.

11 Monetary Policy Definition 3.3 Significance of the study CHAPTER 2: THE REVIEW OF LITERATURE CHAPTER 3: THEORETICAL FRAMEWORK 3.10 Fiscal Policy Definition 3.3 Under employment 3.12 Theoretical Background of Fiscal and Monetary Policy 23 23 23 23 24 24 24 25 26 26 30 33 36 07 05 05 05 viii .7 Unemployed persons 3.8 Measuring Unemployment.TABLE OF CONTENTS CHAPTER 1: INTRODUCTION 1.2 Self employment 3.2 Objectives of study 1.9 Types of Unemployment 3. 3.4 Full employment 3.6 Unemployment rate 3.5 Definition of Unemployment 3.1 Concept of Employment 3.1 Research of the problems 1.

1 Data Source 4.16 Subsidies Definition 3.3 Explanation of the variables 4.1 Regression Analysis 5.4 Methodology 4.17 Definition of GDP / Gross Domestic Product CHAPTER 4: DATA AND METHODOLOGY 4.15 Taxes Definition 3.3.3 Operational Definitions of Variables CHAPTER 6: CONCLUSION AND POLICY RECOMMENDATION 6.1 Conclusion 6.14 Government Spending or Expenditures Definition 3.2 Recommendation for Economic Growth REFERENCES APPENDIX 60 61 62 65-66 55 56 58 ix .13 Money Supply Definition 3.2 Estimation Results 5.5 The Equations and their Interpretation 41 42 44 46 48 52 52 52 53 53 54 CHAPTER 5: ESTIMATIONS AND DISCUSSION 5.2 The Models 4.

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