INFLATION, EXCHANGE RATE, UNEMPLOYMENT AND ECONOMIC GROWTH IN PAKISTAN: AN EMPIRICAL ANALYSIS USING THE ARDL APPROACH

The objective of this research study is to capture the relationship between unemployment, inflation, the exchange rate and economic growth in Pakistan. The study used unemployment, inflation, exchange rate and gross domestic product (GDP) variables. However, time series data for the period from 1990 to 2018 were employed through Augmented Dicky Fuller, and unit roots tests were applied to check the stationarity of the data. Autoregressive distributed lag (ARDL) and the error correction model (ECM) have been employed to investigate the long-run and short-run parameters between unemployment, inflation, exchange rate and economic growth. The ARDL model result shows that there is a long-run relationship between the variables. Furthermore, the difference test shows that there is no problem of heteroscedasticity, misspecification of the model or serial correlation. The autoregressive distributed lag (ARDL) model indicates a significant positive relationship between inflation, the exchange rate and economic growth and a significant negative relationship with unemployment in the long run at the 5% level. Furthermore, the results depict that the error correction model (ECM) coefficient is -1.03 and significant, suggesting a 103% adjustment in a year.