INDUS INSTITUTE OF HIGHER EDUCATION KARACHI

Impact of inflation on economic growth :an overview on Pakistan

[FINANCE THESIS]
[IQRA IRSHAD] [B.B.A :08-A]

SUPERVISED BY : SIR NAWAZ AHMED

Turnitin Originality Report

Impact of inflation on economic growth: an overview on Pakistan By Iqra Irshad (ID- 5-2008 BBA-08A)

Processed on 07-Feb-2012 10:26 PKT ID: 227954564 Word Count: 7336

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________________ Javed Iqbal Focal Person Plagiarism Services

______________ Nawaz Ahmed Thesis Supervisor IIHE

____________________ Usman Ali HOD Business Administration

Faculty of business administration

INDUS INSTITUTE OF HIGHER EDUCATION Karachi

CERTIFICATE
I am pleased to certify that Ms Iqra Irshad D/o Mohammad Irshad has satisfactorily carried out a research work, under my supervision on the topic of impact of inflation on economic growth:an overview on pakistan. I further certify that her distinctive original research and her thesis is worthy of presentaton to the faculty of management sciences, INDUS INSTITUTE OF HIGHER EDUCATION Karachi for the degree of B.B.A (FINANCE).

SUPERVISOR:

_________________________

ACKNOWLEDGEMENT
I would like to thank Mr Nawaz Ahmed my supervisor who has given me Many useful comments related to my topic. After his guidence I am able to complete my thesis through his step by step support for my research work.Also I would like to thanks to Mr Javed Iqbal who checked my work on short term notice and appreciat my work by both of persons also a lot of detailed and valuable comments on this thesis. The same appreciations will be for members from my thesis group and for the teacher and members from my groups in course.

DEDICATION
This thesis is dedicated to my parents who introduced me to the joy of reading from birth enabling such a study to take place today.

TABLE OF CONTENTS

Abstract. 5 SECTION 1. Introduction. 6 2. LiteratureReview. 14 2.1 empirical review.15 3. Hypothesis.. 30 4. Variables..30 5. Model and frame work 30 6. Methodology.. 31 6.1 model specification and estimation technique.. 33 7. Results and discussions.. 35 7.1 Data and summary output..... 36 8. Conclusions ... .38 TABLES REFERENCES . 40 APPENDIX. 43

ABSTRACT
The thesis is to find out the impact of inflation on economic growth in Pakistan by using the data from 1950 to 2010. This thesis uses the regression linear model to find out the impact on gdp growth. This study is basis on manzoor hussain who,s findings are insignificant and also similar to singh (2003) which recommands that the rising prices within 4 to 6 % is favorable for pakistan and central bank should keep the policies favorable for the growth. As my findings+ are insignificant that there is no impact of inflation on economic growth.

INTRODUCTION:
Last many year research work on economics has described many reasons of relationship between rising price and economic increase. One major purpose of this research work after identify the rising price is bad thing to economic increase get the week points or effected points. Some research define a threshold rate of rising price above the economic increase is negative and significant due to rising price effects, while the positive level of economics increase is below level of threshold rate of rising price. Even so, as the important results by the previous research work on many different purposes across the countries these results are shows that when the rising price is effect on economic increase there is no general agreement over the point. This document described the major point is that using a regressing formula there is many possible reasons available of inflationary effects on the relationship between economic increase and financial sector development. In general macroeconomics holds that to promote economic increase the combination of low rising price and financial development is a common factor without this combination we cannot promote economic increase. The interesting and debate article is the question of nature connection between financial development, economic increase and rising price. This is also true that this topic and the relationship between these three variables is already using in debates and research point of view. In Large general agreements about connects of these three variables economic increase, rising price and financial development has been reached. Commonly the concept of long term 8

and medium term reaction of rising price, product increase and reducing investment on economic increase is negative. The major aim of policymakers is low rate of rising price if rising price is a main blockage of promoting economic increase, Even so what is the target level of rising price is? How rising price low level is positive impact on financial development and on economic increase? In the other way it is possible to obtain the threshold level of rising price point if a non-linear relationship found between rising price and economic increase, and what is the sign of relationship between rising price and economic increase would controlled. Fischer was first identified the non-linear relationship, he found that at low level of rising price rate the long term relationship between rising price & economic increase is positive, and at high level of rising price rate it become negative. Accordingly the very deep study about the non linear economic increase and rising price, there are many possibilities and factors that explain the existence of rising price threshold effects on the relationship between economic increase and financial development, nowadays the deep study and theoretical research about relationship of economic increase and rising price suggests that promoting the economic increase the financial market playing an important role. Thus we can say that financial market activity goes down and up if changes in the rate of rising price, it is possible that some changes would have long term real activities implication. Moreover these theoretical studies provide strong evidence to prove that financial developments promote economic increase under the moderate and low rate of rising price. Causality test tells the relationship about rising price and economic increase 9

causality. According to Okuyan and Erbaykal there is casualty found in relationship of rising price to economic increase and also tells there is no causality connection found between economic increase and rising price. On the opposite in nature, financial development dose no produced any type of effect on economic increase under high rising price environment. The basic reason of this situation is that in a rising price environments investment project information flow and intermediates returns being used become less readily available and unsure of himself and his future. Suppress a nascent uprising

economic development due to information costs and rising price increases transactions. High rising price conditions can put out of one's consciousness financial intermediation by grinding something down the unimportant of money assets and policy decisions become a cause distort the financial structure. The following accepted customs and proprieties view in microeconomics holds that changes in the rate of rising price by nature. These changes in the long terms do not affect real activity. Even so the expert view of solution terms that even in the long term period the rising price high rates can have made a place for themselves under the most untoward conditions for real economic increase. In these days the major topic amongst economists is that the problem of aggregate economic performance and some individuals is high rates of rising price. Even so there is a very few general agreements about the characterized by perfect conformity to fact or truth between relationship economic increase performance and rising price and by the method in which rising price effects on economic increase. The effects of long term activity increase in rising price rates is very alarming point. The general agreement 10

about the an opposing direction effects of rising price on real economic increase show only a some part of the complete picture. In some previous researches has focused on the non-linear relationship between rising price and economic increase. The first condition is at lower rate of rising price in this condition the relationship is not important in effect or even positive on economic increase but at higher rates of rising price has important negative effect on economic increase.

What level of inflation is harmful to growth?

Theory

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Basically economic research theories results based on about the outputs of economic increase to rising price. These economic theories are very useful because the concept of these theories based on observed hypothesis. Historically in the missing word meaning of term Continually recurring to the rising prices the early researches about the rising price and economic increase were built on cyclical results, continually recurring to the rising prices is regarded as a post world war 2 reasoning. In advance of then, rising price rounds were followed by turn of deflations. Rising price act like a lazy dog that is not doing anything like upward level and downward level trend. The rising price level doing nothing but it is stable in a exceptional level unless and until there is any perturbation. Thenceforth, the rising price moves to another level at which rising price determines. Theory, thus being searched for account a positive correlation position between rising price and economic increase. The aggregative supply and aggregative requirement model also tells that positive behavior of rising price and economic increase, where the rising price effects on economic increase and economic increase is increased. Even so, in the 1970s the concept of stagflation rise hump and the credibility, of the positive connection was questioned. At that time Phillips Curve relationship appeared and widely accepted. In this reason the rate of rising price very high level and also the Phillips Curve relationship is a clue of low and negative output economic increase. In this document the coming after sub-sections we spend some time classic Endogenous increment possibilities, Neo-classical, Monetarist, Neo-Keynesian and Keynesian, every component playing an important role to the economic increase 12

and rising price relationship. Classic economics recollect supply side possibilities if the nations economy is to grow the supply side theories underscore the need for bonuses to save and devote, joined to the land capital and exertions. Under the AdAS framework the Neo-keynesian and Keynesian theory give some important and bit by bit framework for linking rising price and economic increase. Monetarism explain the Quantity possibilities, and playing in important role of pecuniary increase in characterizing rising price, Endogenic & Neo-classical increment theories searched for the effects of rising price on economic increase through its behavior on capital collection and investment. This research is present the important and useful difference among the solutions of theoretical studies, in the different countries the ration of rising price on economic increase is different. Even so, some theoretical results was quite large which show some results about the threshold rate of rising price according different countries. For example in India Mr. Singh show some important results on threshold level of rising price and Mr. Mubarik show useful result about threshold level of rising price in Pakistan and he also said the threshold level of rising price is 9 percent in Pakistan. Some other researches about threshold level of rising price for both types of countries like growing and developed. Even so, Senhadjis and Khan Works on threshold level of rising price for both types of countries like growing and developed. They said threshold level range 7-11 percent for the growing countries including Pakistan. jing xiao find that con-integration framework enclosing correlation matrix and granger casualty test tell the situation of relationship

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between rising price and economic increase. The rising price results show positively on economic increase relationship in the long term period. Rising prices is importantly correlated utilizing the economic increase rate. The simple regressions panel indicates or described the relationship between three variables rising price unevenness economic increase and rising price. Now it is possible with the help of increment accounting model to spot that main grooves through which rising price comes down economic increase.(fischer). According to (lee and Wong) that rising price threshold occurs in the connection between financial Development and increment. Now we can say that some changing in the rising price directly effect on the connection between two variables financial development and increment. Consequently, geomorphologic upgrade in rising price threshold level should be taken when constructing and prediction models of economic increase. Pakistan for the period 1973-2005 describes the threshold level of rising price in Pakistan. In the end of this survey the write finds that there is no any threshold level of rising price in Pakistan. Mubarik (2005) is the main person (director) to find 9 percent of rising price threshold level in Pakistan and all other solutions. This study also shows that there is 5 percent contemporaneous rising price is found in Pakistan that is a positive impact on economic increase. Further study shows that the impacts of contemporaneous rising price on economic increase is good but also show some insignificants. After discuss all the requirements and fundament of the inference reaped from the survey we easily say that the acceptable range of the 14

rising price in Pakistan 4-6% this rang of rising price is helpful for maintain economic increase. Similar idea described in India by Singh in 2003 that the target rising price range is 4-7% suitable in India for economic increase. In Pakistan the rising price is the subject of supply and demand shocks. In Pakistan Central Bank of Pakistan should keep the rising price in rang.

LITRATURE REVIEW
Jing Xiao

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According to Jing xiao the relationship between economic increases and rising prices of china. Previous literature cannot obtain any unambiguous solution on these problems. This research report will mistake rectification and employ conintegration models attaching granger causality test and correlation matrix examine the economic growth and rising prices relationship. This information is annual time series from 1978 to 2007 of china. The long run rising prices solutions show positively relate to economic increase relationship. When china develops economy they must pay attention to price level. The cause of rising prices in the short run period would be high speed increase of investment. Raghbendra Jha and Tu Dang According to annual information of economic increase and rising price variability we see the results on both growing and modernized countries. The information of 1961-2009 period cover 31 modernized countries and 182 growing countries. We obtain the following solution by five year coefficient of variation of rising prices In growing countries we suggest according to significant evidence that rising price variability has show a negative impression on economic increase when the rate of rising price surpasses 10 percent. In modernized countries the increase of rising price is under control there is no any evidence to increase rising price.

Alexander Bick

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This research paper described the relation between rising price and economic increase confirms that the left out variable diagonal of received dialog models can be economically significant and statistically. This important investigation shows the result according to abstraction of Hansens (1999) dialog box tolerance simulation that the relationship between rising price and economic increase for growing countries. Doorstep ideas and Regression slop both are discussed and these readily available for regressors the possible prejudice of excluding and authorities intercepts. Yasir Ali Mubarik According to annual information from 1973 to 2000 we discuss the level of rising prices in West Pakistan (la khan and senhadji 2001). After discuss all the conditions and requirements of threshold model and finally its predisposition results using information of rising prices and economic increase of home country and after study we get following major points. We can define causality directions from rising prices to economic increase and not other way around after causality test. The red alert economic increase is raising prices and threshold model analyze 9 percent recommends threshold rising prices level for economic increase. The powerful solutions, obtain form indicates exact level of threshold rising prices and validity of the model, this deeply research study indicates that the main reason of economic increase is rising prices level below 9 percent. These results might be providing best results in determining an optimal rising price target. All the same, these results does not indicate that economic increase is low the level of rising 17

prices. Erman Erbaykal and H. Aydn Okuya In this survey document writer defines Turkey analyze in our country the relationship between economic increase and rising price in the periods of 1987 and 2006. In both periods turkey analyze with the help of Bound Test developed Pasaran et al. (2001) these test show the results of long term relationship between these two components economic increase and rising price and coming after the test result relationship between two rows of the macrocosm of co-integration collaboration. There is no any result found about numerical significant long term relationship with formed ARDL models and there is also short term numerical significant relationship and negative results found. Causality test represent the causality relationship between two rows. According to Causality test there is no causality relationship found between economic increases to rising price if causality relationship found it has been raising price to economic increase. Monaheng Seleteng This survey tries to explain according to quarterly time-series information for the periods 1981 to 2004 that rising prices optimal levels perform the main role for economic increase in Lesotho, we can easily converted all annual information to quarterly time-series information by using Three dimensional interpolation technique engrafted in Eviews econometric software . These quarterly time series information show 10 percent optimum amount of rising price based on rising price is detrimental for economic increase. According to this result any rising price rate 18

above this optimum level become a reason of economic increase. Manzoor Hussain In this document writer tries to explain the primary thing is that to using annual information of Pakistan for the period 1973-2005 describes the threshold level of rising price in Pakistan. In the end of this survey the write finds that there is no any threshold level of rising price in Pakistan. Mubarik (2005) is the main person (director) to find 9 percent of rising price threshold level in Pakistan and all other solutions. This study also shows that there is 5 percent contemporaneous rising price is found in Pakistan that is a positive impact on economic increase. Further study shows that the impacts of contemporaneous rising price on economic increase is good but also show some insignificants. After discuss all the requirements and fundament of the inference reaped from the survey we easily say that the acceptable range of the rising price in Pakistan 4-6% this rang of rising price is helpful for maintain economic increase. Similar idea described in India by Singh in 2003 that the target rising price range is 4-7% suitable in India for economic increase. In Pakistan the rising price is the subject of supply and demand shocks. In Pakistan Central Bank of Pakistan should keep the rising price in rang.

David Drukker In this survey writer described a question is super-neutrality of money. A 19

currently theoretical solution presents threshold model alternates of superneutrality.the theoretical solution show that the threshold level of rising price more than the effect of rising price on long term increase changes. We use new economic methods to obtain the solution and some other results in non-dynamic, panelinformation model and fixed-effects that have threshold effects. The solution describes that rising price has a nonlinear effects on economic increase. Our solution and theoretical work in which describes that rising price effects on economic increase. The coefficient sign on investment is difference between the industrialized and non-industrialized subsamples, and the coefficient on openness has a positive sign are provide interesting solutions. In the future research our aim we applying threshold techniques will causes the estimate co-efficient on openness to agree with standard hypothesis. Girijasankar Malik and Anis Chowdhury. In this important research document, the authors using annual information t o describes the relationship both long term and short term dynamics of the rising price and economic increase of four South Asian Countries. In this document the authors used error correction and co-integration models to explain the long term and short term relationship of economic increase and rising price. In this research the main objective of the document is to analyze the relation between economic increase and rising price if there is any relation between these two variables, its by nature and no other reason for this relation exit. After study all important and useful requirements authors are found two main results about economic increase and 20

rising price, 1. The relationship between rising price and economic increase are positively related. 2. The Changing in growth rates after changing in inflation is bigger than that increase to changes in rising price rates. These results describe some important points and these points have important policy implications. The helpful advice to reduce economic growth our main and very important step is attempts to reduce rising price to a very low level. Even so, we can easily attempts to achieve faster economic growth may be the inflation rate are becomes unstable. Thus, these points and ups and downs are on a knife-edge.in this document the main challenge for the authors is to search a growth rate level which is stable rising price rate continuously if authors cant find the level of economic growth than first beat inflation then control the faster economic growth rate levels. The basic thing of economic increase is rising price and as per ruled by Bruno and Easterly (1998) this is very tough condition that the economic growth rate may speed the rising price rate and take it down. Shamim Ahmed and Md. Golam Mortaza This research paper explores the present condition between rising price and economic increase in Bangladesh. Some basic assessment has been adopting throughout the error correlation and co-integration models. Further more in this paper explain the economys threshold level of rising price and explores an interesting policy issue about economys threshold level of rising price. The deep study clues pointing that there is a negative long term statistical importance relationship for a country between rising price value and economic increase and also indicates negative along term relationship statistically importance between 21

CONSUMER PRICE INDEX and real GROSS DOMESTIC PRODUCT. Authors have mentioned in this paper about situation of rising price value and economic increase in Bangladesh in late 1990s and they said Bangladesh was already on the turning point (from positive to negative) of rising price value and economic increase relationship. Authors also define the level of threshold if rising price increases this level than affect on economic increase and the recommended 6 percent threshold level of rising price. These solutions show some important policy that applies on both development cooperators and domestic policy makers. The first thing about these policy that that rising price rate is not listed in the salaries and wages. The rising price will effect on buying force and an improve cost of living. Second thing is that country continuously perform tasks to balance the credit requirements by the private and public sectors against both balance of payments pressures and inflationary. According to contractionary monetary policy 11 it is not always possible to monetary authority to maximize the nominated interest rate above the expected rising price rate. That is way the monetary authority is work to reduce rising price using an alternative methods and procedures. Some points are in order. For Example in this context of Bangladesh, the solution provided in this documents do not address the following important issues. 1. It is not possible to say that how the economic increase rate will show the results and the rate

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Of rising price rises. But the rising price remains within the threshold level. 2. The greater rising price uncertainty cause is higher rising price and what is the relationship between rising price uncertainty and rising price. 3. Whether rising price directly or indirectly involves in economic increase. 4. What is the main purpose of high inflationary pressure? Vikesh Gokal and Subrina Hanif According to Gokal and Subrina the main purpose of the document was to explain the basic and significant relationship between rising price and economic increase. According to deeply study about rising price and economic increase and hypothesizes, the survey show some useful and very important perceptiveness behave of rising price & economic increase like magnitude. In Michael report he found after 8 percent structural break rising price badly affected on increment. Khan & sendadi found that threshold rising price level for developing countries are 11-12 percent and for industrial countries at 1-3 percent. These results playing important role to fix the main benefit of maintain rising price stable and supply a useful penetration into the relationship between two components. Looking specifically rising price performance between the two variables is not surprising under the heavy duty link, given the influence rising price current topical cream construction of the economic system and factors. Negative weak link shows only correlation co-efficient and operate from economic increase to rising price shows causality.

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According to some other surveys to importance of maintain low rising price provide some important points for Fiji policymakers in order to foster higher economic increase. Chien-Chiang Lee and Swee Yoong Wong According to Huybens and smith, Gylfason and Herbertsson and Bose rising price will effect on financial market through real economic activities. Same results are produce for American countries by Gregorior and Guidotti. When American countries faced in 1970s and 1980s high rising price rate, financial development retarded economic increase. The main purpose of this study investigates the relationship of three variables for Japan & Taiwan and these three variables are raising price, financial development and economic increase. Toward investigate the relationship of these three variables, to investigate the effects of possible rising price on remain two variables relationship between financial development and economic increase; we employed the TAR approach reduced by Tong & Hansen. After investigate we find that there is one rising price threshold value condition in Taiwan and two rising price threshold value conditions in Japan. The estimation results of processing on annual increase rate of rising price and exploring the effects of financial development on economic increase under unlike rising price routines that when the rising price level of threshold below 7.25percent and higher than 7.25 percent than the financial development may upgrade economic increase for Taiwan and financial development will not produce any effect on economic increase respectively. Accordingly financial development 24

upgrades economic increase under low level rising price. In Japan the deeply study results show that when the level of rising price of threshold is below 9.66 percent than financial development show some useful effect on economic increase. However, when the rising price above threshold level financial development is prejudicious to economic increase. In the end of this document the conclusion that Japans rate of rising price is low or temperate when the financial development will promote economic increase can be established and we find this result with the help of Huybens and Smith, Bose, and Rousseau and Wachtel. In Taiwan and Japan the guessed result obtain in this study that rising price threshold occurs in the connection between financial Development and increment. Now we can say that some changing in the rising price directly effect on the connection between two variables financial development and increment. Consequently, geomorphologic upgrade in rising price threshold level should be taken when constructing and prediction models of economic increase for Taiwan and Japan.

Minli
Now a days economists believe that high rates of rising prices is a cause of many problems not just for on problem it is a reason of many problems. but for mass economic interpretation. Even so, very low range of agreements available about the prices relationship between rising price & economic increase behavior and environment by which rising price effect on economic increase, The first portion of the document by the help of increase expenditure formula & the increase accounting formula explain the effects of the rising price on economic increase performance in both type of growing and developed countries, the solution 25

supported the nonlinear relationship between rising price and economic increase. In further both types of countries growing and developing countries show different types of reactions of nonlinearity between the rising price and economic increase relation. In the growing countries, the information about rising prices and economic increase shows that two threshold available in the function relating rising price and economic increase. The first level of threshold was showed 14 percent, & second level of threshold was showed 38 percent. In the first threshold level the rate of rising price is low similarly the effects of rising prices on economic increase are positive and acceptable level. In The level two rising price rates for Moderate which are between the two threshold levels the effects of rising price on economic Increase is negative and rate of rising price is very high. at exceedingly high rising price rate, the borderline shock of part rising prices on economic increase lessens speedily but is stillImportantly negatively charged. In the developed countries, there is one threshold is discovered and the it is very important, the level of threshold is stronger to estimation suggests and model stipulations and this important threshold level is discovered at 24 percent, Both types of levels of threshold works are same in growing countries and developed countries that is way the rate of rising price is below the level of threshold 24 percent. The main reason of negative economic increase is raising price while the importance of this negative effects on rising price exceeds this level of threshold. In this document define 2 levels of thresholds for both types of countries growing 26

and developed, the effects of both level on these countries are follows: in the first level of threshold defines (what rising prices blocks increment, but subwoofer which ever rising prices has no pregnant or even positive results on increase), whereas in the second level of threshold (in this level defines the large amount of drop in the marginal effects of rising price occur). Further in this document explain nonlinearity effects on both types of countries (growing and developed), and growing and developed countries have a different type of nonlinearity in the rising price and economic increase relation. For growing countries these researches show some useful and well define policy implication. First define the range of marginal negative effects on moderate rising price and the range is 14 to 38 percent is mentioned. We can reduce economic increase by about 0.2-0.4 percent points if increase in rising price by 10 percent point per year will effect on economic increase rate. This advice effect on long term moderate rising price on increase will lead to a substantial negative effect on economys performance. Second important thing in this document for policymakers will not keep the rising price level at 0 percent since the first level of threshold of 14 percent does not impede & even stable economic performance. Third main thing in this document hyperinflation and it is not have any hyper-inflation effects of economic increase because moderate rising price is grater that marginal impact of hyperinflations similarly we can say that decrease in the hyperinflation rate have not any important effects on economic increase. Therefore the main goal of policymakers in growing countries is controlling moderate rising price. 27

India has managed its economic stability at the most appropriate way. There are only two incidents which show the economic stability but they have managed their demands and supply very effectively. Indian monitory and fiscal policy helps the country in managing its financial increase and stability through the year and helps in its people growth. Since the developed countries express a different design of nonlinearity in the rising price- economic increase enterprise : the magnitude of the bad impression of rising prices on increment diminutions as the rising price rate multiplies, and even the low degree rising prices rate has a potent disconfirming effect on economic increase, policymakers in developed countries, unlike those in evolving Lands, should exercise attempts to keep the rising price rate at zero percent seeing as a little bit of addition in rising prices will cause a important simplification in economic increase. This determination, to some extent, subscribes the inflation-targeting pecuniary policy espoused by New Zealand, Canada, the United Kingdom, and other countries. The second portion of this document is very important and in this season attempted to find the way which rising price affects on economic increase in a nonlinear method for long term period. There is two main tools (linear model and the model with threshold effects) are used for examined the efficiency of investment and the level of investment. The useful thing is (TFP increase) for both types of countries growing and developed, but not the investment level (Investment /GROSS DOMESTIC PRODUCT), the channel which nonlinearly affects economic growth and rising price adversely is hypothesized by existing theoretical models. Further more for growing countries the level of moderate rising price is below 65 28

percent and for developed countries the level of moderate rising price is below 42 percent, rising price show the significant effects on investment level. Most current studies explain between rising price and long term economic increase role of the level of investment (capital accumulation). Thus, according to papers contribution we can say that the TFP increase is a important channel actually TFP is only channel through which rising price affects economic increase in nonlinear method for long term period.

Prasanna v Salian1, Gopakumar. K2

This research motivated by the current developments on the relationship between rising price and economic increase and also proved some useful and important tips for developed and growing economies. In this document, tally the long term and short term dynamics relationship of rising price and economic increase by using error correction model and co-integration model. In India we can tell that using annual information that the important objective to search that if there is any relationship in rising price and economic increase available than its any reason or its nature. The exiting result found about this situation is that first is rising price and economic increase is negatively related and the second thing is increase to changes in rising prices rates is smaller than rising prices to changes in increase rates. These solutions have main policy implications. In this research the rising price and economic increase nexus has been systematically analyze in India. The important result is that from the previous period if any increase in rising price negatively effect on economic increase. The 29

most desired policy is there is always a constantly down press on rising price without any information about what is the threshold level. Moreover policymaker notes that negative effect on economic increase by the any increase in rising price from the last nay period at any level. The main reason is decision maker and common peoples do not like rising price has enormous behave on the consumption method. In India rising price has commonly under control. Various fiscal monetary and administrative measures playing an important role in India to control a rising price there is two period of rising price since 1980 but administrative measures and various fiscal monetary controlled rising price efficiency. Also the results of investment behavior in private manufacturing tell that an increase in level of rising price rate is negative behavior on private investment in manufacturing. India has managed its economic stability at the most appropriate way. There are only two incidents which show the economic stability but they have managed their demands and supply very effectively. Indian monitory and fiscal policy helps the country in managing its financial growth and stability through the year and helps in its people growth.

Stanley Fischer
Rising prices is importantly correlated utilizing the economic increase rate. The simple regressions panel indicates or described the relationship between three variables rising price unevenness economic increase and rising price. Now it is possible with the help of increment accounting model to spot that main grooves 30

through which rising price comes down economic increase. In this research document the author described with help of past research papers and studies that results of the document inculpated that rising price effected on economic increase by cutting the rate of productivity increase and trimming down investing. We also see in exceptional cases that in long term period the low rising price and small deficits were not important for high increment, high rising prices was not consistent with survived increment.

HYPOTHESIS:
Whether there is impact of cpi on gdp growth. There is no impact of cpi on gdp growth. There is no impact of trailing cpi on gdp growth.

VARIABLES:
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DEPENDENT: GDP growth INDEPENDENT: CPI, log CPI

Research is base on quantitative bases and the data collection is on secondary basis from published data of state bank of Pakistan and some business news papers including economic survey of Pakistan reports.

MODEL AND FRAME WORK

CPI

GDP GROWTH

CPI_1

METHODOLOGY:
Most of the information we collect on this subject used large number of countries reporting with control panel information and crossbreed sectioned information. For example Senhadji, khan and Burdekin draped many countries used crossbreed sectioned information in the diagnostic. If individual countries have a rising prices increment relationship researchers chose crossbreed sectioned information because individual country generally lacks the strain of rising price experience necessary to 32

ascertain. Yet Easterly and Bruno described when information from countries with 40 percent or more than 40 percent rising price are excluded from the diagnostic than any crossbreed sectioned relationship between economic increase and rising price loses importance. In the similar fashion, Barro and Fischer used control panel information to take into thoughtful the time proportion of rising price and economic increase. There are very few researches or surveys In particular countries Mubarik research and Sing research both used in their research time series data to calculate the rate of threshold rising prices. While in this research reports data about CONSUMER PRICE INDEX, & GROSS DOMESTIC PRODUCT takes from the State Bank of Pakistan and machines. Two types of data information is used to evaluate the mechanism through rising prices impairs long term economic increase and to inquire the relationship between rising price and economic increase. In the period 1951 to 2010 the empirical framework account have used yearly information of Gross Domestic Product and Consumer Price Index found from the Pakistan Bureau Of Statistics, in the first phase in this empirical formwork for example the connection between rising price and economic increase, firewood of existent Consumer Price Index (1 CPIt *) & (2 CPIt-1) have been used. Moreover, economic increase rates are calculated from the deviation of firewood of Cross Price index and from firewood rates of rising prices. Economic Policy Department libraries or storage

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Model Specification and Estimation Technique

We used the following linear regression equation formula: The main purpose of the simple linear regressions was to uncover the general behave of the increasing function relating the rising price rate and economic increase. GDPGt = + 1CPI t + 2 CPI t 1 Where GDPGt = Gross domestic product growth over a year 34

 & = Perameters
CPI t = Current years consumer price Index CPI t 1 = Trailing years consumer price Index The first regression equation formula described that common linear framework. Even so, in above discussion we can easily described with the help of recent studies that Threshold impacts are an accompaniment with a rising price rate increasing some important value or below some important values according to Smith, Boyd & Levine. In different words we can say that the relationship between rising price and economic increase does not follow one specific pattern. In this empirical framework threshold effects with estimation and inference related econometric issues. To conduct correct results it is important to find and create suitable methods. In this current important phase we explain a thoughtful and nontechnical concept of the methodology. In this equation formula the main two variables Log of Consumer Price Index (CPI) and Consumer Price Index (CPI) calculate the level of rising price on Gross Domestic Product (GDP) increase. The calculated solution from the simple regression framework (1) is some consistent, extent with the existing condition.

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RESULT AND DISCUSSION

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Gdp growth shows the up and down trend from 1951 to 2010.

Cpi (consumer price index ) shows the up ward trend from 1951 to 2010.

SUMMARY OUTPUT
Regression Calculations 0.0407358 Multiple R 16 0.0016594 R Square 07 Adjusted R 0.0339956 Square 14 2.4885057 Standard Error 31 Observations 59

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Analysis of Variance( ANOVA) df Regressi on Residual Total 2 56 58 SS 0.5764 21 346.78 9 347.36 54 MS 0.2882 1 6.1926 61 F 0.0465 41 Significanc eF 0.9545626 69

Source: This study

Explanatory power of model is as low as 0.16% which is highly insignificant. As ANOVA table shows very low F statistics of 0.04 (cutoff of F statistics is 4). Moreover the F statistics also reflect that the model is insignificant.

Interce pt CPI CPI_1

Coefficient Stan- Error 5.1500975 0.4334986 04 83 0.0320260 0.1062595 99 04 0.1175345 0.0350302 12

t Stat 11.880 31 0.3013 95 0.2980 4

P-value 6.18E17 0.7642 3 0.7667 74

95% Lower 4.2816952 97 0.1808372 6 0.2704801 1

95% Upper 6.018499 71 0.244889 46 0.200419 72

Source: This study

The insignificance of individual variables is also observed from t statistics which are 0.3 and -0.29 respectively (cutoff of t is 2). Only intercept is significant which is further validated by p-value as both the coefficients p-value are not less than 0.05.

38

Equation # 2 Estimation:
GDPGt = + CPI t This equation shows the single variable Consumer price index at time t (CPIt) to estimate the growth in GDP.
Regression Calculation 0.0087 Multiple R 07 7.58ER Square 05 Adjusted R 0.0174 Square 7 Standard 2.4685 Error 36 Observations 59

Analysis of Variance( ANOVA) df Regressi on Residual Total 1 57 58 SS 0.0263 33 347.33 91 347.36 54 MS 0.0263 33 6.0936 68 F 0.0043 21 Significance F 0.94781701 4

Source: This study

R-square shows goodness of fit which is very low which means overall model is not fit. ANOVA table shows that very low F calculation of 0.004 (cutoff of F statistics is 4). F statistics also indorses that the model is insignificant.
Coefficient 5.126038 24 0.000412 49 StanError t Stat 0.4224983 12.132 22 68 0.0062747 0.0657 91 37 P-value 1.98E17 0.9478 17 95% Lower 4.2799999 48 0.0121525 7 95% Upper 5.972076 53 0.012977 54

Interce pt CPI

Source: This study

39

The insignificance of individual variable is also observed from t statistics which is 0.065 which is less than 2 and it is further validated through p-value which is not less than 0.05. Only intercept is significance

CONCLUDING REMARKS
The main purpose of this empirical according to the periods of yearly information 1951-2010 we calculate the Impact of rising price on economic growth in Pakistan. After study all the information we found there is no impact on growth of rising price in Pakistan. This phase is very important for Pakistan rising price rate level because is this document we find out a point of view gradually coming into being a relationship between 2 variables rising price & economic increase in Pakistan. In this condition linear regression test methodology employed to define the relationship about rising price and economic increase. Examine the relationship between two variables rising price and economic increase we used Consumer price index (CPI) as a power of attorney document for rising price and the Gross Domestic Product (GDP) as a power of attorney document for economic increase. This important information is belong a period from 1951-2010. Using the regression framework I obtain the results of stationary test. The null possibilities being that there are cellular levels but neglect to decline at first difference inculpating that the things were found insignificance. So neglect to refuse the possibility.

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As this study resemblance to Manzoor Hussain (2005), his finding is same that the result is insignificant so that there is no threshold level of inflation in Pakistan so far as I found that insignificancy in result. According to Mubarik description the threshold rate of level rising price is 9percent in Pakistan. Even so, a rise in interest rates is often contemporaneous with an increase in rising price is found to have important positive effects on economic increase up to 5% rising price level rate. In addition with this point, the impact a rise in interest rates is often contemporaneous with an increase in rising price on increment is positive but influence.After drawing reasoning and conclusion

recommdation is to keep in Pakistan rising price within the range of 4 to 6 percent. So it may be useful for capable of being maintained economic increase. Similarly we can study the same Singhs idea 2003 addition. He describes the rate of targeting rising price range in India is 4 to 7 percent. So here we can say that rising price in Pakistan is subject about the demand, supply and stocks it is not a relating to or involving phenomenon completely. To keep rising price in control in Pakistan it should calls a policy through Central Bank of Pakistan (CBP).

41

REFRENCES
R.Barro Vol 78(1996). Inflation and growth, Reserve Bank of St. Louis Review. Robert J Barro Cambridge press (1997) Determinants of Economic Growth: a Cross Country Empirical Study. M.Bruno, and Easterly,( 1998) Vol.41Inflation crises and long-run growth, Monetary Journal. S.Fischer,(1993) Vol.32 The role of macroeconomic factors in economic growthMonetary Economics journal. Sahay Ratna, Stanley, Fischer, and Vgh, (1996) Vol.10, Stabilization and Growth in Transition Economies: The Early Experience, economics journals. Bruce, Hansen (1999), Vol.93 econometrics journal. Threshold Effects in NonDynamic Panels Estimation, Testing and Inference. Hansen, Sample Splitting and Threshold Estimation, May (2000), Vol. 68 Chowdhury and A Hussain, (1996) LONDON. Monetary and Financial Policies in Developing Countries. Khan, A., 2000.FEDERAL RESERVE BANK OF PHILADELPHIA, February (2000) The finance and growth nexus. Business. 42

S. Senhadji and, Mohsin S khan. (2000) IMF Working Paper Threshold Effects in the Relationship between Inflation and Growth. Renelt. D and R.Levine,( 1992)American economic review ,vol.82 A sensitivity analysis of cross-country growth Regressions.

Yasir Ali Mubarak (2005) volume 1, no 1 (2005) Inflation and Growth: An Estimate of the Threshold Level of Inflation in Pakistan State Bank of Pakistan Research Bulletin. K. Chowdhury and Kearny, (1997).Vol. 29 Inflation and economic growth: a multiCountry empirical analysis Michael, sarel, (1996), Nonlinear Effects of Inflation on Economic Growth, IMF Papers, vol 43(march) International Monetary Fund. Kaliappa K and K. Singh. (2003) Journal of policy Modeling. The InflationGrowth Nexus in India: An Empirical Analysis Vol .25. International Research Journal of Finance and Economics Vol. 17 (2008) EuroJournals Publishing, Inc. Alexander Bick. Department of Economics,Threshold eects of Rising Price on economic Increase in developing countries Alexander Bick Department of Economics, Goethe University Frankfurt. Working Paper Series: WP 0604Rising Price and Economic Increase in Bangladesh: Ahmed Shamim and Golam Mortaza December ,(2005) Policy Analysis Unit, Research Department, Bangladesh Bank. Rising Price on Economic Increase: 43 Evidence From Four South Asian

Countries Mallik Girijasankar and Chowdhury Anis Asia-Pacific Development Journal, Vol. 8, No. 1, June (2001) Indian Economic Service. Rising Price on Economic Increase in India An Empirical Analysis .Prasanna V Salian1,Gopakumar. K2 Manzoor Hussain. October 2005, Rising Price and Increment: Estimation of Threshold Point For Pakistan.Economic Policy Department, State Bank of Pakistan. Xiao Jing.(2007)The Relationship between Rising Price and Economic Increase of China.

Gokal Vikesd & Hanif Subrina.Relationship between Rising Price and Economic Increase. Working Paper Vol. 4 December 2004 Economics Department Reserve Bank of Fiji Suva Fiji. MinliVol 14 (2005).Rising Price and Economic Increase: Threshold Effects and Transmission Mechanisms Department of Economics, University of Alberta. Chien-Chiang Lee and Swee Yoong Wong Vol.3 no.2(2010), National Chung Hsing University Journal :Sustainable Development: Rising Price and Economic Increase in Nigeria Economic department.

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APPENDIX
RESIDUAL OUTPUT Predicted GDP Growth 5.40966923 5.375763562 5.365025494 5.368555743 5.363334031 5.377904791 5.399285115 5.372069023 5.372515079 5.336530274 5.318532279 5.318054904 5.306114643 5.264828627 5.227170583 5.176989977 5.108163708 5.076927116 5.046786647 5.128253878 5.278901989 5.21439201 5.028316518 4.684031472 4.810484597 5.305675899 5.211733901 5.136762926 5.04528812 4.909348436

Observation 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Residuals -7.2096692 -3.6757636 4.83497451 -3.3685557 -1.863334 -2.3779048 -2.8992851 0.12793098 -4.4725151 -0.4365303 0.68146772 1.8819451 1.19388536 4.13517137 2.37282942 -2.07699 1.69183629 1.42307288 4.75321335 -3.9282539 -2.978902 1.58560799 2.47168348 -0.7840315 -1.5104846 -2.5056759 2.4882661 0.36323707 2.25471188 1.49065156

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RESIDUAL OUTPUT Predicted GDP Growth 4.986919241 5.230122897 5.172356402 5.101921824 5.04391094 4.99572828 4.9373396 4.833705186 4.713272626 4.579791295 4.774154681 5.21469871 5.108008203 4.97240905 4.81978924 4.660808489 4.501411801 4.380753567 4.290647045 4.21437146 4.619359754 5.306156493 5.272613671 5.207190193 5.117518486 5.029539172 4.917318014 4.71085618 4.449916928 Residual s 2.613081 1.569877 -1.17236 3.598078 1.356089 0.804272 1.46266 -0.03371 -0.11327 1.020209 2.925845 -2.9147 -0.60801 -0.87241 1.780211 -2.96081 -1.00141 -0.18075 -0.39065 -2.21437 -1.51936 -0.60616 2.227386 3.79281 0.682482 1.770461 2.282682 -6.31086 -0.64992

Observation 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59

46

Dependent variable: GDP growth. Independent variable: CPI & log CPI Method : regression model Observations : 60

Regression Calculations 0.0407358 Multiple R 16 0.0016594 R Square 07 Adjusted R 0.0339956 Square 14 2.4885057 Standard Error 31 Observations 59

Analysis of Variance( ANOVA) df Regressi on Residual Total 2 56 58 SS 0.5764 21 346.78 9 347.36 54 MS 0.2882 1 6.1926 61 F 0.0465 41 Significanc eF 0.9545626 69

47

Interce pt CPI CPI_1

Coefficient Stan- Error 5.1500975 0.4334986 04 83 0.0320260 0.1062595 99 04 0.1175345 0.0350302 12

t Stat 11.880 31 0.3013 95 0.2980 4

P-value 6.18E17 0.7642 3 0.7667 74

95% Lower 4.2816952 97 0.1808372 6 0.2704801 1

95% Upper 6.018499 71 0.244889 46 0.200419 72

Dependent variable: GDP growth. Independent: CPI. Method: regression model. Observations: 60

Regression Calculation 0.0087 Multiple R 07 7.58ER Square 05 Adjusted R 0.0174 Square 7 Standard 2.4685

48

Error Observations

36 59

Analysis of Variance( ANOVA) df SS Regression 1 0.026333 Residual 57 347.3391 Total 58 347.3654

MS 0.026333 6.093668

F 0.004321

Significance F 0.947817014

Interce pt CPI

Coefficient 5.126038 24 0.000412 49

StanError t Stat 0.4224983 12.132 22 68 0.0062747 0.0657 91 37

P-value 1.98E17 0.9478 17

95% Lower 4.2799999 48 0.0121525 7

95% Upper 5.972076 53 0.012977 54

GRAPHICAL REVIEW

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