Empirical Investigation of Fiscal, Monetary and Trade Policies Impact on Economic Growth of Pakistan

Abstract

Sustainable economic growth and development is undoubtly, one of the most challenging issue nowadays, in the developing countries, particularly in Pakistan. Therefore, economists mainly focus on the importance of the fiscal, monetary and trade policies in escalating economic growth. This study investigate empirically the impact of fiscal, monetary and trade policies on economic growth of Pakistan, employing ARDL bounds test approach. From an evaluation of the overall analysis and results, it is concluded that, on fiscal policy variables side, development expenditure have positive and significant effect, while, current expenditure have also significant but negative effect on economic growth. On monetary policy variable side, money supply have also positive and significant effect on economic growth. Finally, on trade policy variable side, trade openness have positive and significant effect on economic growth. The results of this study confirm the finding of most previous study, since the advent of the endogenous growth theory and new trade theory. The study suggest that the level of fiscal policy variables, development expenditure could be effectual while current expenditure has been detrimental to economic growth. In the same way, on monetary policy variable side the level of money supply could also be effectual in an augmenting economy. Finally, the level of trade policy variable, trade openness could be effectual in managing economic growth.