Key Factors Affecting GDP in Pakistan Over the period 1975-2011

Abstract

The main objective of this study was to investigate the impact of key factors like agriculture, industrial, the services sectors output, exchange rate and the trade openness on the economic growth in Pakistan. To fulfill the objective of the study, time series data spreading over the last 37 years (1975-2011) were collected from World Development Indicator (WDI). The empirical analysis started by analyzing the time series property of the data which was followed by checking the stationarity of all dependent and independent variables. The Johansen VAR-based Co-integration approach was applied to examine the sensitivity of real economic growth to changes in the explanatory variables in the long-run. The estimated coefficients of agriculture, services, industrial output, trade openness and the exchange rate positively and significantly affected the real GDP by 0.05, 0.42, 0.35, 0.025, and 0.062 percent respectively. The most significant factor identified, having impact upon the real GDP was the industrial output. It was contributing 0.42 % toward the real GDP.

Key words: Johansen Co-integration, GDP, agriculture, industrial, the services sectors, trade openness