Inflation Matter for Sectoral Growth In Pakistan

The purpose of this study is to examine the effect of inflation on economic growth in Pakistan using annual time series data from 1981 to 2021 and employing econometric techniques, such as Bound Testing ARDL approach. Three sectors of Pakistan's economy: manufacturing, agriculture and services were selected as a sample of study. Sectoral growth, which represents manufacturing, agriculture, and services sectors growth, was chosen as a dependent variable, whereas independent variables include inflation, Per capita income, population growth annual, FDI, Exchange rate, and Export. According to the findings, the key variable, inflation, has a positive and significant impact on agriculture sector growth, but it has a negative impact on manufacturing and services sectors in the long-term. The impact of inflation on services sector is more pronounced than manufacturing sector. However, the short-term results of Error Corrector Model suggests that inflation has a positive link between three sectors of Pakistan's economy. Therefore, the study proposes that policymakers should focus on controlling inflation through effective macroeconomic policies to achieve sustainable sectoral growth and economic development.