ASSIGNMENT No: 1

Subject Issues in Pakistan

Submitted by:

Roll No:

Class: MSC (Economics)

Date: 13.12.2021

Semester: 4th

Session: 2019-2021

University of Kotli

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 TABLE OF CONTENTS
Abstract ........................................................................................................................................... 3

1 Introduction ............................................................................................................................. 4

2 Literature Review .................................................................................................................... 6

3 Data and Methodology ............................................................................................................ 8

4 Empirical Results ..................................................................................................................... 9

5 Conclusion ............................................................................................................................. 10

6 Policy and Planning ............................................................................................................... 11

References ..................................................................................................................................... 11

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 EFFECT OF INFLATION AND UNEMPLOYMENT ON ECONOMIC
GROWTH IN PAKISTAN
Abstract
This observe discovered the effect of inflation and unemployment on economic growth in Pakistan.
The time series facts used for the time period of 1980 to 2010 which is accrued from international
facts bank. The unit root ADF and philliperron indicates that monetary increase is stationary on
level in addition to 1st difference however unemployment and inflation are desk bound on 1st
distinction. The ARDL result indicates that there is a long term relationship among the variable.
Furthermore, the results of White Heteroscedasticity, Ramsey reset and Breusch-Godfrey Serial
Correlation LM take a look at shows that there is no problem of heteroscedasticity,
misspecification of version and serial correlation respectively.
Keywords: Inflation, Unemployment, Economic Growth.

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Introduction
The Gross Domestic Product describes as the fee of very last items and service which have been
produced within the limitations of nations all through the time period of one year. When humans
are actively seeking for a activity but they may be unable to discover a paintings is known as
unemployment. International Labor Organization (ILO) defines unemployment as human beings
looking for a piece for past four week however they cannot determined a piece. Increase in
wellknown price level of products and services over unique term in an financial system is known
as inflation. There is kind of inflation in economy first one is fee pull inflation and second is call
for pull inflation. Demand pull Inflation occur whilst the mixture call for of the goods and offerings
then aggregate supply of products and offerings in the financial system. Cost pull inflation arise
whilst the value of inputs like uncooked fabric increases. Unemployment and inflation are
macroeconomic variables and it has very crucial impact on economic increase. According to Pigou
(1993) under evolved nations want to reap the better financial growth charge in minimal time
period. These international locations obtained the superior era from western international locations
but followed flawed regulations to obtain the higher monetary boom because of this reason
unemployment multiplied very sharply. Aghion & Howitt (1994) explore that better economic
growth added a brand new method and technology. These strategies and technology create a job
destruction within the financial system. Lin (2004) investigates that developing nations followed
capital in depth guidelines and these regulations can not useful to make competitive market. These
policies distortion is the major motive of failure to gain the better monetary boom. According to
the Amjad and Ahmad (1989) on the time of inception Pakistan had agricultural economic system,
exporting the rural commodities like cotton and jute and importing the consumer Goods. The
performance of Pakistan’s cannot be solid because her inception in 1947 due to unstable rules of
Government. The financial increase of Pakistan has been very inspiring in Nineteen Sixties and
Seventies this is 6.7% and 6.1% respectively. On the opposite hand unemployment has been very
critical difficulty for Pakistan due to the fact the policies primary that specialize in economic
increase and job introduction has secondary choice of these rules. Initially in 1970s Pakistan just
dealing with 0.52% Unemployment price but in 2000s it became increases to a few.Forty one%.
This observe the usage of the time collection facts for the term of 30-years 1980 to 2010 to estimate
the impact of inflation and unemployment on monetary growth in Pakistan. In financial version
this examine hired the Cobb- Douglas Production Function, economic boom relies variable,

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inflation and unemployment are impartial variables. In econometric version to begin with this
examine the usage of the Unit Root Test to check the stationary of the variable then decided both
this study using Ordinary Least Square Method or Co-integration test etc.
1.1 Objective of the study: -
 To find the impact of unemployment on Economic Growth.
 To find the impact of Inflation on Economic Growth.
 To suggest some important policy about inflation and unemployment and Economic
Growth.
Hypothesis: -
 Ho: Unemployment has no impact on Economic growth in Pakistan.
 H1: Unemployment has impact on Economic growth in Pakistan.
 Ho: Inflation has no impact on Economic growth in Pakistan.
 H1: Inflation has impact on Economic growth in Pakistan.

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Literature Review
There is lot of work has been done on national level or international level to estimate the
impact of inflation on economic growth and impact of unemployment on economic growth. In first
section of this literature review this study discussing the Theoretical Frame Work, in second
section mention the Empirical Frame Work and in third section conclude this chapter.
Literature Review: -
Gandelman and Murillo (2009) investigated the impact of inflation and unemployment on
subjective personal and united states opinions. They used the Gallup world poll facts and this
statistics consist on wide variety of nations. The information set of Gallup World poll statistics
incorporate on 70,000 individuations in 75 countries. Initially In first step they are using Ordinary
Least Square approach on person characteristics and the result indicates that non-public or u . S .
Satisfaction that isn't always explained by way of man or woman characteristics. In second step
they run Ordinary Least Square on usa degree and results suggests that impact on wellbeing from
a 1%-factor trade in both inflation or unemployment. However, universal outcomes of this take a
look at showed that inflation and unemployment negatively impact to the private person
evaluation. Ansari, Mohamad and Alias at el. (2011) found the Multivariate Time Series Analysis
on correlation among Inflation Rate and Employment Rate with Gross Domestic product. They
are the usage of the time collection statistics for the yr of 1982 to 2006 of Malaysia. They are the
use of the econometric techniques to estimate like Unit Root
Tests, Co-Integration Test and Granger Causality Test. The result suggests that during unit
root test all variables are stationary on first distinction, Johansen Co-integration indicates that GDP
and the explanatory variables moves closely to acquire the long term equilibrium. Overall results
intimate that inflation and employment have unidirectional with Gross Domestic Product in short
run. Umaru and Zubairu (2012) determined the impact of Inflation on the Growth and
Development of the
Nigerian Economy. They are the use of the time collection data for the term of 1970 to
2010 from Central Bank of Nigeria. They used the Unit Root Test and Granger Causality Test to
estimate the effect of inflation on financial boom. The results shows that each one variables are
desk bound on first distinction they are the usage of Granger Causality Test. The result of Granger
Causality Test suggests that there's one way causation flowing from GDP to inflation. Muhammad,
Saidu and Nwokobia at el.(2013) located the impact of Unemployment and Inflation on Wages in

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Nigeria. The Ordinary Least Square Method to start with used t-statistics suggests that
unemployment significantly influences wage price, Durbin-Watson data which shows that the
model isn't always spurious. The Unit Root Test results famous that every one variables are
stationary on 1%, 5% and 10%.The Granger Causality Results
indicates that unemployment and inflation does not granger reasons salary price. This
results suggests one-way causation flowing from unemployment to salary price not inflation to
salary rate. The unemployment has a high quality impact on wage fee but alternatively inflation
can not effect on salary fee.
Jaradat (2013) discovered the impact of unemployment and inflation on Jordanian Gross
Domestic Product (GDP). He used the time collection information from the 12 months of 2000 to
2010. He accumulated the statistics from global bank database. He used the lining regression
method through SPSS to estimate the relation between based and unbiased variables. His results
suggests that after we boom zero.906% Inflation then GDP will will increase by means of 1% then
again whilst Unemployment decreases 0.697% then GDP will increases via 1%. Overall effects
intimate that GDP and Unemployment have poor vast courting but then again GDP and Inflation
have a robust tremendous sizable courting. Hussain, Siddiqi and Iqbal (2010) investigated a
coherent courting between Economic Growth and Unemployment in Pakistan. They used the time
collection records in view that 1972 to 2006. They used the Augmented Dicky Fuller check for
Unit Root, all the variable are desk bound on first level difference then they used the Johansen
Cointegration to locate the long run dating between variables. The outcomes of Co-integration take
a look at intimate that
GDP Growth, Unemployment, Labor, Capital, Openness of Trade have longer term dating.
The ordinary consequences intimate that GDP increase has terrible courting with unemployment.
Khan, Khattak and Hussain (2012) investigated the inter-courting of Gross Domestic
Product Growth and Unemployment in Pakistan. They used the time collection information from
the time period of 1960 to 2005. Initially they used the Augmented Dickey-Fuller (ADF) test, the
consequences are desk bound on first distinction then they used the Johansen Co-integration take
a look at. Their effects intimate that 1% boom will reduce unemployment 0.63%. On the alternative
hand 1% lower in unemployment will increase the GDP growth by way of 7.25%. The outcomes
intimate that GDP Growth in long term has bad relationship with Unemployment in long term.
Umar and Razaullah (2013) determined the impact of GDP and inflation on unemployment price

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in Pakistan. They are using the time collection information seeing that 2000 to 2010 and run
regression through SPSS. The outcomes indicate that the F-take a look at fee is very low and
underneath the value of 4.00. R rectangular has confined variant i.E zero.70% and 22.8% from the
inflation to Gross Domestic Product and unemployment. They found that inflation have negative
for Gross Domestic Product and feature bad correlation with unemployment.
Conclusion
The above literature opinions show that inflation is vary form economic system to economic
system however most of the research indicate that there's a fantastic courting between inflation
and financial increase or GDP. On the opposite hand, the above literature opinions confirmed that
there's a negative relationship among unemployment and economic increase or GDP.
Data and Methodology
Introduction of the Chapter
This chapter described that what kind of information and econometric strategies are used to
estimate the impact of Inflation and Unemployment on Economics Growth and additionally
discussed that what type of method undertake and why used those variables to estimates the effect.
In first section of this chapter mentioned approximately the variables and facts and in section
focusing on the method. In 0.33 segment elaborates the financial techniques which we're using and
in fourth section we finish this chapter.
Selection of Variables and Data
The records used in this examine are time collection information for the term of 1980 to
2010. The facts accrued from Hand Book of Statistics published by using State Bank of Pakistan
and World Data Bank posted by means of World Bank. This take a look at used the Economic
Growth as Dependent Variable, Inflation and Unemployment as explanatory variables. Literature
Reviews indicates that there's negative dating between Unemployment and Economic Growth
however high quality dating among Economic Growth and Inflation.

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Methodology

Economic Techniques
To estimate the impact of inflation and unemployment on financial growth to begin with this
take a look at used the Augmented Dicky Fuller take a look at for Unit Root to test whether
variables are stationary or station. Gross Domestic Product (GDP) and Inflation are desk bound on
stage and intercept and unemployment is desk bound on first distinction then used the ARDL
version. To used the ARDL method this study used the wald test to find out the long term courting
between the variables.
Conclusion
Fifth Chapter, Methodology and Data discussing about the records type, data term and data
supply. Further advanced an equation on this bankruptcy that showing the variables and
additionally mentioned what kind of econometric strategies are used on this look at to estimate the
impact of inflation and unemployment on financial growth.
Empirical Results
Previous research display that the Gross Domestic Product (GDP) has a terrible dating with
unemployment and fantastic dating with inflation (Gandelman and Murillo 2009). Inflation has
terrible for Gross Domestic Product and have bad correlation with unemployment in Pakistan
(Umar and Razaullah 2013). Further this take a look at used the Autoregressive-Distributed Lag
(ARDL) model to discover the long term relationship among the unemployment, inflation and
economic increase.

Three levels of essential price 1%, five% and 10%. Number of “*” signs and symptoms show that
at what number of tiers of crucial values, variable is stationary. E.G. At level of ADF take a look

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at foreign exchange charge (-three.182056**) variable is desk bound at 2d levels of critical values.
The unit root check suggests that variables are stationary or non-desk bound. The two checks
augmented dickey fuller and Phillip Person tests are used to test the stationary. The consequences
intimate that GDP is stationary at degree and intercept in augmented dickey fuller in addition to
Phillip Perron. Unemployment is desk bound before everything difference and intercept in ADF
as well as Phillip Perron and then again inflation is desk bound on degree and intercept in ADF
and Phillip Perron. All the variables aren't desk bound on identical stage so this observe used the
Autoregressive Distributive Lag (ARDL) model method.

Conclusion
This look at found the impact of inflation and unemployment on financial increase in Pakistan.
The time collection information used for the term of 1980 to 2010 that's accrued from international
information financial institution. The preceding studies display that there may be a terrible
relationship between unemployment and economic increase however alternatively inflation have
a advantageous effect on financial increase. This study effects of unit root ADF and philliperron
shows that economic growth is stationary on level as well as 1st distinction however
unemployment and inflation are desk bound on 1st distinction. This study also used the
Autoregressive Distributive Lag (ARDL) Model method. The ARDL consequences suggests that
co-integration exist between the variables that shows there may be a longer term relationship
among the variable. Furthermore, the consequences of White Heteroscedasticity, Ramsey reset and
Breusch-Godfrey Serial Correlation LM test indicates that there may be no hassle of
heteroscedasticity, misspecification of version and serial correlation respectively.

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Policy and Planning
 Encourage the self-employment / entrepreneurship to conquer the unemployment.
 Government spending additionally very helpful to growing a brand new jobs.
 Political balance may be very essential to reduce the unemployment and increase the
economic increase.
 Controlling the populace increase charge.
 Proper training device is very useful to conquer the unemployment.
 Higher inflation price may be very dangerous for monetary growth so, additionally control
the inflation charge.
 In a long run extra output is produced at a low in line with unit value this is helpful to
acquire the persistent financial boom.
References
Gandelman, N., & Hernandez-Murillo, R. (2009). The impact of inflation and unemployment on
subjective personal and country evaluations. Federal Reserve Bank of St. Louis Review,
91(3), 107-26.
Umaru, A., & Zubairu, A. A. (2012). Effect of Inflation on the Growth and Development of the
Nigerian Economy: An Empirical Analysis. International Journal of Business and Social
Science, 3 (10).
Khan, A. Q. K., Khattak, N. U. R. K., & Hussain, A. H. (2008). Inter-dependencies and Causality
in the Macroeconomic Variables: Evidence from Pakistan (1960-2005). Sarhad J. Agric.
24 (1): 199-205.
Hussain, T., Siddiqi, M. W., & Iqbal, A. (2010). A Coherent Relationship between Economic
Growth and Unemployment: An Empirical Evidence from Pakistan. International Journal
of Human and Social Sciences, 5(5), 332-339.

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