Social Overhead Capital and Economic Output in Pakistan: An ARDL Bound Testing Approach

The present study aims at investigating the effectiveness of social overhead capital related factors on economic output. Three factors related to social overhead capital are chosen in the study those are transportation, communication and education. The study incorporates Unbalanced Growth Theory in which three separate operational models are designed to observe their influence on economic output. Further, Cob - Douglas form of the equations are exercised for elasticities. According to nature of variables, ARDL (Autoregressive and Distributed lag) and ARDL error correction models are selected for reliable and appropriate long run and short run estimates. Using VAR models, 2 is preferred as an appropriate lag length for all the models on the basis of information criterions. ARDL bound test approach to co - integration suggests existence of long run relationships in all models. Long run results may be justified by economic theory and indicate positive influence of investment or capital formation on economic output while labor is found to have inverse impression on economic output. In the study, roads (in kilometers), telephone lines (thousands), transmission hours of radio Pakistan, educational expenditure, higher enrollment and university enrollment are enhancing economic output of Pakistan in the long run. In the long run, railway tracks (kilometers), Revenue PIA flown (thousand kilometers) and number of post offices are inversely related to economic output. Speed of adjustment term indicates that due to short run disturbances, long run equilibrium will be restored by 22 percent annual adjustments on the average.