Economic Growth And Inflation: A Time Series Analysis Of Pakistan

This study discusses the impact of inflation on the economic growth of Pakistan and estimates the short run and long run relationship between inflation and economic growth. Using annual data set on real GDP and CPI for the period of 1972 to 2011. An assessment of empirical evidence has been acquired through the co-integration and Error Correction Model. The empirical evidence demonstrates that there exists a statistically significant long run positive relationship between inflation and economic growth. The country has indicated a statistically significant long run positive relationship between CPI and economic growth. Error Correction Model used which shows long run and short run relationship it is essential to see the economy is convergence towards equilibrium in short run or not. The Error Correction Term -0.075852 shows 7% convergence form short run to long run occur with change in the inflation with in the year for Pakistan. Error Correction Term 0.161013 which shows 16% divergence form short run to long run occur with change in the economic growth with in the year for Pakistan.Goverment should maintain inflation in single digit which is fevrableble for economics growth