Determinants of Industrial Sector Growth in Pakistan

Abstract

Basic purpose to make this study was to find out the determinants of industrial sector growth in Pakistan. Factors were collected from the existing empirical literature. Neo classical model of economic growth was followed and autoregressive distributed lag (ARDL) method of estimation was applied to calculate the results. Augmented Dickey Fuller test was applied to check the presence of unit root in the time series data. Annual data from 1976 to 2014 was chosen to make the analysis. Trade (% of GDP) and Personal remittances, received (% of GDP) showed positive and significant association with Industry, value added (% of GDP) and lag value of industry, value added(% of GDP) showed negative and significant relationship with Industry, value added (% of GDP) in long run. But in short run, differenced lag value of industry, value added (% of GDP) showed negative and significant association with Industry, value added (% of GDP). The remaining variables did not show significant association with industrial growth. Wald test was applied on the long run variables to calculate F.statistic. Calculated F.statistic is higher than both the Pesaran et al. (2001) and Narayan (2004) upper bound critical values at 5% level of significance. Diagnostic test of correlation was conducted through Lagrange Multiplier (LM) test: LM(-1)=2.93(0.10). LM test confirmed that there was no serial correlation. The stability of the model for long run and short run relationship is detected by using the cumulative sum of recursive residuals (CUSUM) that resulted in the stable relationship.

Keywords: Industrial sector, Trade, Remittances, ARDL, Wald test, LM test, CUSUM.