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Determinants of Gdp Growth in Pakistan

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Determinants of Gdp Growth in Pakistan

Page 1 of 19
Determinants of Economic Growth in Pakistan
1.Introduction
The economic growth is a complex phenomenon, which involves several factors. One of the major areas of research in economics has been to identify these factors. There is ample literature on the subject matter. These factors differ from country to country. Due to the different socioeconomic conditions the factors of economic growth may be different in the cases of developing and developed countries. The growth of developing countries is not stable. If these factors can be identified, it can help to accelerate growth by focusing on the major leading sources of growth. Economy of Pakistan has registered a growth rate of 5.32%, 6.30%, 3.96%, and 3.34% during 1970-1980, 1981-1990, 1991-2000, and 2001-2003 respectively. Overall average for the said period is 5.03%[1]. This trend is both important and significant for Pakistan. It is because this almost five percent growth rate is accompanied by growth in the capital stock which approximates around 17 to 18 percent of the GDP[2]. This accumulation of resources shows a trend, that incremental capital-output ratio (COR) is low in Pakistan than a number of East Asian, South Asian and Latin American countries.[3] Existence of this situation justifies a detailed study of the factors, which are responsible for the moderate growth rate with low capital accumulation. The study is organized as follows: Section two throws light on the theoretical illustration of the relations between economic growth and factors to be explored in this study. Section three presents a brief review of literature. Section four contains empirical methodology and data. Empirical results are discussed in section five. Section six concludes the study.

2.Theoretical Foundations
1. Growth of Gross Capital Formation and Economic Growth. Capital formation is a process of addition to capital stock through successive doses of investment. This has direct impact on...