Disclaimar: Impact of Inflation On Economic Growth

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DISCLAIMAR
The purpose and scope of this information memorandum is to introduce the subject matter and
provide a general idea and information on the said area. All the material included in this
document is based on data/information gathered from various sources and is based on certain
assumptions. Although due care and diligence has been taken to compile this document, the
contained information may vary due to any change of the concerned factors and the actual results
may differ substantially from the presented information. The prospective user of this
memorandum is encourage to carry out additional diligence and gather any information he/she
feels necessary for making an informed decision………..
Impact of Inflation on Economic Growth

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ACKNOWLEDGEMENT
Whose mercies & unlimited blessing are upon us & who graced us with knowledge and
Wisdom
Who has provided us courage and made us ambitious to achieve our goals.
&
We thankful to our respected teachers Madam Nasira Bashir who dedicatedly broadened
our
Vision
Through their ample experience & served as a lighthouse in this incredible venture.
Also thanks for all teachers of our department who open heartedly provided us a chance to
Groom under their knowledge and kind supervision.

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DEDICATION
We dedicate this small effort
“To our beloved parents and teachers who are precious”
&
“To the person whom we love & for all those that pray for us”
Living legends of excellence for our lives. Without their knowledge, and wisdom.
Guidance, we would not have achieved the goal. We have to strive & be best
To reach our dream.

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FORWARDING SHEET
The project on article entitled Impact of Inflation on Economic Growth is from the
student of BBA (HONS) Morning, IRSA FAREED (1002) and of 8th semester session 2013-
2017 is completed under my supervision.
Date____________ Supervisor: __________

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Abstract:
The main point of this research is to study the existence of inflation economy growth relationship
of Pakistan and in other countries. It is, additional, to examine whether it support or hurts the
economic growth in a consistent way or it acts in a different way in unusual levels. Data for the
period 1990-2015 have been taken and analysis is made by applying the method of Linear
Regression. A moderate inflation rate and economic growth relationship has been found to be
present in the economy of Pakistan. The result of this study shows that current inflation rate is
dangerous to the growth of the economy after a firm threshold point. On the root of the analysis,
it is suggested to the strategy makers and the State Bank of Pakistan to confine the inflation
underneath the 8 percent point and to keep it steady. Thus that it may put forth its helpful
impacts on economy growth of the economy. If inflation increase in any country then that
countries GDP obviously decrease. Through regression method I found that there is a negative
relation among interest, inflation and GDP. In this study also see the relation of inflation, interest
with FDI.
Key Words:
GDP, Inflation, Interest rate, foreign direct investment

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Contents
Introduction ....................................................................................................... 8
Problem Statement:................................................................................................................................... 9
Significance of Study: ............................................................................................................................... 9
Objectives of Study: ................................................................................................................................ 10
Literature Review ............................................................................................. 12

Methodology ..................................................................................................... 21
Framework ....................................................................................................... 21
Hypothesis: ............................................................................................................................................. 22
Regression Equation: .............................................................................................................................. 22
Data Collection Method: ........................................................................................................................ 24
Sampling Size:......................................................................................................................................... 24
Target population: .................................................................................................................................. 24
Sample technique: ................................................................................................................................... 24
Data Analysis & Interpretation ......................................................................... 26

Conclusion ....................................................................................................... 31
Recommendations: .................................................................................................................................. 32
References:.............................................................................................................................................. 33
http://www.gdpinflation.com/2013/01/inflation-rate-in-pakistan-from-2000-to.html ............................ 33
Appendix ................................................................................................................................................. 35
Excel Sheet (1) ........................................................................................................................................ 35
Excel Sheet (2) .................................................................................................................................... 36

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Introduction
High and consistent economic growth with low down inflation is the main purpose of the
macroeconomic strategy makers. As a result, inflation is the most researched topics in
macroeconomics for the last years. What aspects settle on the inflation rates have also been
discussed all over the world? Inflation, in collective demand is called ‘demand- pull inflation’
where supply distress is cause ‘cost-push inflation. High economic growth, with no increase in
inflation, is possible if the possible output of the economy is increasing enough to keep pace with
demand. When the real output equal the prospective output, there remains no additional
competence and the economy is working full on employment level. High inflation is always
associated with high cost inconsistency, which can lead to improbability about the expectations
effectiveness of investment projects. It will leads to lower levels of investment and low S
economic growth. Inflation also impacts an economy’s balance of payments by making its
exports relatively more expensive. Furthermore, inflation can also work together with the tax
system to upsets borrowing and lending decisions. Achieving stable or consistent economic
growth is the goal of the all countries. The most necessary subject of macroeconomic policy is
rate of inflation and growth of economy. With many variables we can say that inflation is
determinant of economy growth.
The relationship between growth and inflation depends on the state of the economy. High
growth, without boost in inflation, is possible if the potential output of the economy is growing
to keep pace with demand. It is also possible if the actual output is less than the potential output
when the actual output equal with the potential output then economy is working on full on
employment level. If demand starts to grow and the productive capacity does not increase, there
is a danger of very fast increase in price level without any growth in the output. In this phase
boost in inflation can have severe consequences for the economy.
High inflation is always associate with high price which lead to uncertainty about the future
investment projects. This leads to more effective investment decisions making. It will lead to

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decrease in investment and very low economic growth. Firms have to utilize more resources to
deal with inflation.
The study also examine inflation is harmful to or not for economic growth. Many studies have
estimated a negative relationship between inflation and economic growth. Specifically the basic
aim is that whether inflation is necessary for economic growth or not. The rate of economic
growth depends on the rate of capital formation and the rate of capital depends on the rate of
savings and investment. Economic growth and inflation rate have been fluctuating. Relationship
between inflation and economic growth one of the most macroeconomic. Also increase in
demand caused increase in inflation and production. Phillips first introduced hypothesizes that
high inflation positively affects the economic growth by lowering unemployment rates.
Problem Statement:
The purpose of this study is to investigate the relation between inflation and economic growth
and. Therefore at the end of this study following questions would be answered.
• Is there any significant relation is between inflation and economic growth? If so, is the
relation is positive or negative?
Significance of Study:
The significance of the study is that inflation is major problem in Pakistan and in all over the
countries and affect people’s daily life like income, purchasing power, literacy rate, money
supply, etc and they all effect economic growth of in some way and that further effect in country
development. So it’s important that we know how impact inflation has on economic growth and
at what level of inflation we can positively manage our economic growth. To measure the degree
of responsiveness of economic growth (GDP) to changes in the general price levels (Inflation
rate). To establish the relationship between inflation and GDP growth rate in Tanzania. This
study is very important to macroeconomists, financial analyst, academicians, policy makers and
central bankers officials in understanding the responsiveness of GDP to the change in general
price level and thus come up with the relevant policies so as to keep prices at the reasonable rate
that stimulate production.

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Objectives of Study:
• The major objective of the present study is to analyze the impact of inflation on GDP
growth in Pakistan. It is to evaluate the GDP growth performance and to assess the
historical trends of the inflation in Pakistan.
• To state the policy implications, keeping in view the statistical significance of the
estimated results about inflation and growth relationship and its effects on the economy
of Pakistan.
• To establish the relationship between inflation and GDP growth rate.

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Literature Review
Ayesha Sultan1, Faiza Maqbool Shah (2014),

The main purpose of this study is existence of relationship between inflation and economic
growth. Also that it supports or hurt economy in what way; consistent way or in different ways.
Results were that inflation is dangerous for economy. For strategy makers low inflation with
high economic growth is the main purpose. In this study says that it is possible if the output of
economy is increasing to pace with demand of that economy. In case, if the economies real
outcome is equal to the expected outcome then there will be no competencies and economy will
work full on employment level. Higher prices always associate with high cost that lead to
improbability about the expectations effectiveness of investment projects. Inflation can also work
together with the tax system to upsets borrowings and lending. Significance is that inflation is
main issue that affects the lives of people’s like their purchasing power, income, money supply
and also they effect on economic growth. So it’s very essential to know the impact of inflation
that have on economic growth. This study concludes or result that there is a moderate and
significant relationship between inflation and economic growth y using Co-efficient Co-relation
and regression. Strategy makers should give attention which keeps the inflation steady. Also
recommend that modest and constant inflation useful for decrease the fluctuation in financial
sector.
Muhammad Ayyoub , Imran Sharif Chaudhry, Fatima Farooq (2011)

The main point of this study is identifying the existence of inflation in the economic growth and
main point is to determine the impact of inflation on GDP growth of economy. Also analyze
inflation hurts or encourage the economy in same or different way. This study found the negative
relationship in economy growth. Also found that inflation is very harmful to GDP growth of
economy. Relationship between inflation and economy growth always depends the state of that
economy. If economy have high growth and very low inflation, it is only possible in that
situation if potential output that economy is growing to pace up that economy. It is also possible

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if the expected output is low that the actual. High inflation is always correlate with increased
price changing. This situation leads us to low level of investment in projects. Recommends that
organizations should have to allocate more resources to deal with the inflation. This study’s main
focus is on impact of inflation on GDP growth. Also focus on the nature of relationship; positive
or negative. Findings are that inflation is very harmful or have negative impact on GDP growth.
In other words, increase in prices day to day basis is dangerous for economy. Also found that
with the increase in the prices GDP growth is decrease. Inflation may bring the positive impact
but mostly it hurts the economy.
Södertörns University | Department of Social Science (2012)
In this study examine that any countries objective is to sustain high economic growth. Many
factors affect economic growth of any country but main or focus of this study in only inflation.
This study analyze that there is a negative relationship between economic growth and inflation.
This study also examined causality relation by using panel causality test. Previous studies states
there might be no relationship, positive relationship and negative relationship between inflation
and economic growth. This study’s focus not only checks the relationship but also to check the
level of inflation. Structuralistic view that relation is positive whereas monetarists view that
inflation is negative. Both have reasons behind these views. In neo classical views, inflation
increases economic growth by shifting the income distribution in favor of higher saving
capitalists. While in Keynesians said that raising the rate of profit inflation may increase. Focus
of this study check the relationship and investigate causality relationship. For testing the
relationship model was formulated with explanatory variables (inflation, investment, population,
and initial GDP). Result is that relationship is negative between them. In other words have
adverse or worse effect on economic growth. Inflation and real GDP per capita have opposite
trend. This study has good contribution.
SAAED, Afaf A.J.
Moderate inflation rate is good for economic growth or it promotes the development. It enhances
investment and good return to savers. The main purpose is to study and analyze the relationship
between them in Kuwait. Several studies confirm the existence between these variables either a
positive or negative. Finally, most studies indicate that low or stable inflations are good for

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economy. Further analyze that how long inflation should be. In this regards many economist
adopted techniques and analyze that impact of inflation should be positive to a certain threshold
level and then it turns to negative position. Inflation reduced the efficiency of investment. In this
study, in some cases they found positive or in some cases, they found negative relationship.
Jaganath Behera Research Scholar, University of Hyderabad (2014)
This study investigates the relationship between inflation and economic growth in south Asian
countries. This study used time series data. Results found that there is a high positive correlation
between economic growth and inflation. Firstly says that there is no relationship or positive
relationship between these variables. Structuralistics believe that inflation is essential for
economic growth and monetarist assumes that it is detrimental for growth. While Friedman
summaries relationship with possible combinations; inflation with and without development, no
inflation with and without development. They found no effective relationship. Some studies
found the positive relationship but some economist found the negative relation. High economic
growth with low inflation is essential for every economy. But in these countries found the
relationship high positive correlated. The result of the study has significant policy implications
for the South Asian countries.
Vikesh Gokal Subrina Hanif December 2004
Like many countries one of the main objectives of macroeconomic policies is to achieve high
growth with low level of inflation. This study suggests the negative relationship between
inflation and growth. Any countries macroeconomic stability means low inflation with high
growth. When inflation interferes in any countries economy it imposes negative impacts.
Inflation also reduces the efficiencies or future probabilities of investment projects. High
inflation leads to lower investment. In inflation in any country then it leads to exports more
expensive and foreign competitiveness. Inflation distorts the borrowings and lending.
Recommends or conclude that firms have to allocate more resources to deal with high inflation.
Study examine that relation is linear or non linear, causal or nonexistent. The findings of studies
provide ways to Fiji policy makers to slow down the inflation.

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Manoel Bittencourt, Monaheng Seleteng and Reneé van Eyden
The main objective of macroeconomic policies are to achieve low level of inflation and achieve
sustain growth. In this study found that there is a negative relationship. Many studies that
relationship is negative and after that it reaches a certain threshold. In this study found that low
inflation is necessary but not a sufficient for sustained growth. But more countries have low
inflation with high growth. In this study found the relationship in the southern African
development community. Because this relationship is different from developed countries.
Majority says the relationship is negative. By using methodology found that low inflation have
positive and high inflation have negative relationship. This implies that the inflation-growth
relationship is non-linear.
Faraji Kasidii Kenani Mwakanemela (2013)
Like several countries central objectives of macroeconomic policies in Tanzania is to boost

economic growth and lower level of inflation. The aim of this study is to see the impact of
inflation on economic growth and establish relation between them. Regression equation,
correlation coefficient techniques to see the relationship between Inflation and GDP. Results are
found that there is a negative relation. The main objective of macroeconomic policies is to
attained sustained growth with price stability. The emphasis given to price stability in conduct of
monetary policy is to promoting sustainable economic growth as well strengthening purchasing
power. Many studies estimate a negative relationship between them. Bone of contention is that
inflation is good for economic growth or not. In today era, inflation was not regard a problem,
instead considered a positive impact on economic growth. Positive impact in this way that high
inflation positively affects the economic growth by low down the unemployment rates. This
study is about Tanzania results found from regression analysis is that inflation has negative
impact on economic growth. It means that inflation is very harmful to economic growth.
Negative and short term relationship was found. The study conclude that degree of
responsiveness of change in GDP according to change in price is inelastic. Policy makers should
to focus on low level of inflation. Thus attain and sustain economic growth, policy makers
should to keep inflation at a minimum rate.

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Shapan Chandra Majumder (2016)
There are so many factors but focus on this study is inflation. The objective of this study to see
the relationship between inflation and economic growth in Bangladesh. Most countries objective
is to achieve economic growth. But it is a problem to achieve objective due to many factors.
Researchers investigate about inflation and come up with different views. Views are that there
are two types of inflation. Demand pull and Cost push inflation. Demand pull inflation is that
inflation where the basic cause com from demand side. The increase in demand due to many
different factors like increase in supply, increase in government purchase and so on. When
demand increase and cannot increase in supply will lead to general rise in price and inflation
occurs. Cost push inflation occurs because of rise in cost of production. Previous studies examine
that there might be no relationship, positive relationship or positive relationship. In today's era
not to find the relationship but also to find the level of inflation. According to structuralistic view
is that inflation has a positive impact and monetarists see is as detrimental to economic growth.
Both give reasons why inflation has positive or negative relationship. According to Keynesians
say that inflation may increase growth if increase the rate of profit thus increase investment.
Empirical studies shows that why inflation is negative related. There are many studies that shows
that negative relation between economic growth and inflation conclude that moderate inflation
would not affect growth rate negative. This study relates to Bangladesh to examine the
relationship between them. The emphirical results show that there exists a significant long-run
positive relationship between inflation and economic growth. Behera and Mahmud who said that
there is positive relationship between inflation and economic growth in long run.
Shahzad Hussain ,Bahauddin Zakariya University Multan, Pakistan (2011)
This study explores the nexus between inflation and economic growth in the context of Pakistan
economy. According to this study, inflation is positively related with economic growth in
Pakistan and vice versa. Inflation is a constant rise in commonly accepted price indices. There
are two major factors of inflation: Demand-pull inflation: It appears in an economy when

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aggregate demand is higher than aggregate supply is low Cost push inflation: It occurs result of
increase in cost of basic inputs of the production process. It is widely accepted that basic factor
for increase in inflation has been termed as enhanced level of economic activity in a society. So,
strengthening in economic activity leads to high inflation and weak economic activity lowers the
inflation. This macroeconomic variable has very much importance in economic literature
because it has strong effects on economic stability of the country. Inflation and growth are
positively related in India, Pakistan, Bangladesh and Sri Lanka. However, existence of negative
association between inflation and economic growth has also been pointed out in so many other
studies. High inflation rate is also considered as an ill for economic growth in Pakistan because it
had witnessed high inflation since its independence. The relationship between inflation and
different determinants of economic growth may also be intervened by the presence of certain
variables. This study has the central objective to investigate growth-inflation relationship
empirically while focusing Pakistan economy. Second, the study seeks to observe the short-run
and long-run effects of inflation on economic growth of Pakistan and vice versa. Thirdly, out of
this study may be able to resolve an issue regarding finding out the best level of inflation rate for
Pakistan economy. Finally, the study has special purpose to provide an efficient and active policy
for future.
This study has been an attempt to empirically explore the effects of inflation on economic
growth of Pakistan and vice versa. A judgment of the empirical evidence has been obtained
through the co-integration and error correction models to examine the long-run and short-run
dynamics of the inflation-growth relationship. In addition, the study also discovers an interesting
policy issue of what is the threshold level of inflation for the economy. The empirical evidence
suggests that there is positive relation between inflation and economic growth in Pakistan. He
finds negative association between inflation and economic growth. But our findings imply that
both variables affect each other positively and have significant impact. Our empirical findings
also demonstrate that there is significant relationship between the two variables in the long-run.
These findings have some policy implications for the policymakers and development partners.
This study is inconsistent with policy suggestions by international agencies. Efforts to minimize
inflation to a very low level are likely to adversely affect economic growth. The real challenge
for the government of Pakistan is to achieve a growth rate which is consistent with a stable

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inflation rate, rather than beat inflation first to take it to a path of faster growth. So, the goal that
the government of Pakistan has to achieve is of keeping inflation to single digit, or close to single
digit.
Chris O Udoka, Phd Anyingang Roland. (2012)
The main thrust of this study was to investigate the effect of interest rate fluctuation on the
economic growth of Nigeria. Two research hypotheses were formulated to investigate the
relationship between interest rate and economic growth and the difference in economic growth
before and after interest rate deregulation regime in Nigeria. The result of the findings revealed
that: there existed an inverse relationship between interest rate and economic growth. that
increase in interest rate will decrease GDP of the country, thus retarding growth of the real
sector. It was recommended that a strong monetary policy for Nigeria should be evolved that
would enhance lending to the real sector economy for productive economic activities. The focus
of this study was on the effects of interest rate on the growth of the Nigeria economy. Interest
rate is a determinant of economic growth as measured by GDP. The result specifically leads to
the conclusion that a direct relationship existed between interest rate and the growth of the
economy (GDP), meaning that increase in interest rate will certainly increase savers are
encouraged to save thereby inducing growth in the economy. Also, the economic growth of
Nigeria after interest rate deregulation is greater than the economic growth after interest rate
deregulations.
Ahmed Imran Hunjra, Syed Ali Raza2and Muhammad Usman Asif (2013)
This study examined the impact of macroeconomic variables on foreign direct investment (FDI)
inflows in Pakistan. The variables included in this study are; GDP, inflation rate, interest rate,
exchange rate and FDI. The results of the study confirm that interest rate have significant
effect on FDI inflows in Pakistan. On the other hand, the inflation is found to be insignificant in
determining the FDI inflows in the country. In this paper an empirical investigation was made
to find out the impact of inflation, and interest rate on FDI inflows of Pakistan. On the basis of
the statistical examination of the data it was concluded that there exist a significant relationship

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of Interest Rate with Foreign Direct Investment Inflows of Pakistan. While insignificant
relationship of Inflation rate and was found with Foreign Direct Investment Inflows of Pakistan.
Chingarande Anna (2012)
Foreign direct investment (FDI) is very low in Zimbabwe and this is resulting in low levels of
economic growth and standards of living and has hindered efforts to promote economic
prosperity and sustainable development for the country. Hence this research seeks to find the
relationship and impact of interest rates on FDI inflows. It also sought to find out other
determinants that significantly affected FDI inflows. The research tested the hypothesis that high
interest rates have a positive impact on FDI inflows. The paper found that interest rates had no
significant impact on FDI inflows. The purpose of this research was to determine the impact of
interest rates on FDI. The results of the study that interest rates do not affect FDI. The findings
revealed that high interest rates insignificantly affect FDI.

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Methodology
This study is quantitative in nature and examines the causal relationship between economic
performance and inflation in all countries. The models we use to investigate the impact or
relationship between inflation and economic growth are regression method. Data used in this
study is secondary and the sources of data collection for this study are internet or others
researcher's research that is authentic and accurate.
Framework
Independent Variable Dependent Variables
Gross Domestic
Inflation Rate Product (GDP)
Foreign Direct
[[Interest Rate Investment (FDI)

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Hypothesis:
H0: There is no significant relationship between GDP and inflation.
HA: There is a significant relationship between GDP and inflation.
H0: There is no significant relationship between GDP and interest rate.
HA: There is a significant relationship between GDP and interest rate.
H0 : There is no significant relationship between FDI and inflation.
HA : There is a significant relationship between FDI and inflation.
H0 : There is no significant relationship between FDI and interest.
HA: There is a significant relationship between FDI and interest.
Regression Equation:
GDP= α+ β1 (inflation) + β2 (interest) + ϵ
FDI= α+ β (inflation) + β2 (interest) + ϵ

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GDP: (Gross Domestic Product)
Gross domestic product (GDP) is the monetary value of all the finished goods and services
produced within a country's borders in a specific time period. Though GDP is usually calculated
on an annual basis, it can be calculated on a quarterly basis as well. GDP includes all private and
public consumption, government outlays, investments and exports minus imports that occur
within a defined territory. Put simply, GDP is a broad measurement of a nation’s overall
economic activity
Foreign Direct Investment (FDI):
Foreign direct investment (FDI) is an investment made by a company or individual in one

country in business interests in another country, in the form of either establishing business
operations or acquiring business assets in the other country, such as ownership or controlling
interest in a foreign company. Foreign direct investments are distinguished from portfolio
investments in which an investor merely purchases equities of foreign-based companies. The key
feature of foreign direct investment is that it is an investment made that establishes either
effective control of, or at least substantial influence over, the decision making of a foreign
business
Inflation:
Inflation is the rate at which the general level of prices for goods and services is rising and,
consequently, the purchasing power of currency is falling. Central banks attempt to limit
inflation, and avoid deflation, in order to keep the economy running smoothly. As a result of
inflation, the purchasing power of a unit of currency falls.
Interest Rate:
Interest rate is the amount charged, expressed as a percentage of principal, by a lender to a

borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the
annual percentage rate. The assets borrowed could include, cash, consumer goods, large assets,
such as a vehicle or building. Interest is essentially a rental, or leasing charge to the borrower, for
the asset's use. Interest is charged by lenders as compensation for the loss of the asset's use.

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Data Collection Method:

It’s a secondary data research method. Collect data from articles, journals, and internet. This
research is based on past data. It is a realistic study for the determination of the interrelationship
between the economic growth and inflation and interest rates. This relationship will be
determined by estimating a fundamental relationship between inflation and GDP.
Sampling Size:
In this research collect the data of 26 years of the GDP. Data collect from the history of KSE
index. 26 years is the sample size of this research
Target population:
As this research work is limited to explore the affect of inflation on GDP so the research target
population correspondingly is the GDP of Pakistan.
Sample technique:
Purposive sampling method is chosen by the researcher. This technique of sampling includes the
sample of the related data while excluding irrelevant data. In other words it is a better way to
stay fix on the topic. In this study we have randomly taken the data. It means random sampling
technique use in this study.

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Data Analysis & Interpretation
HYPOTHSIS NO 1 & 2: There is no relationship between GDP and inflation.
There is no relationship between GDP and interest rate.
Regression:
Model Summaryb
Adjusted R Std. Error of the

Model R R Square Square Estimate Durbin-Watson
1 .753a .567 .529 5.247 1.037
a. Predictors: (Constant), interest, inflation
b. Dependent Variable: GDP
Interpretation:
The study results reveal that there is a negative relationship between GDP and and inflation and
interest rate depicted by coefficient of determination R of .753 and Rsquare of .567. This means
that change in inflation and interest rate does influence on any change in GDP.
ANOVAb
Model Sum of Squares Df Mean Square F Sig.
1 Regression 829.365 2 414.682 15.064 .000a
Residual 633.135 23 27.528
Total 1462.500 25
a. Predictors: (Constant), interest, inflation
b. Dependent Variable: GDP
Interpretation:
From the ANOVA results, the probability value of .000 is obtained implying that it is lesser than
sig level of 0.05 which means that null hypothesis is rejected.

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Coefficientsa
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 2020.209 3.944 512.243 .000
Inflation -.291 .256 -.158 -1.137 .267
Interest -1.337 .244 -.759 -5.476 .000
a. Dependent Variable: GDP
Interpretation:
Coefficient show that there is a negative relation between GDP and inflation also and also
negative relationship between GDP and interest rate. It means if inflation increase than GDP
decrease and also if interest increase than GDP decrease. It shows the significant result of
interest but slightly significant of inflation.
HYPOTHESIS NO 3 & 4: There is no relationship between FDI and inflation.
There is no relationship between FDI and interest.
Regression:
Model Summaryb
Adjusted R Std. Error of the

Model R R Square Square Estimate Durbin-Watson
1 .626a .392 .339 1.22293 .778
a. Predictors: (Constant), Interest, inflation
b. Dependent Variable: FDI US $
Interpretation:
The study results reveal that there is a negative relationship between FDI and interest rate and a
positive relation between inflation and FDI depicted by coefficient of determination R of .626

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and Rsquare of .392. This means that change in inflation and interest rate does influence on any
change in FDI.
ANOVAb
Model Sum of Squares Df Mean Square F Sig.
1 Regression 22.202 2 11.101 7.423 .003a
Residual 34.398 23 1.496
Total 56.600 25
a. Predictors: (Constant), Interest, inflation
b. Dependent Variable: FDI US $
Interpretation:
From the ANOVA results, the probability value of .003 is obtained implying that it is lesser than
sig level of 0.05 which means that null hypothesis is rejected. .
Coefficientsa
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 2.373 .919 2.582 .017
Inflation .113 .060 .311 1.895 .071
Interest -.174 .057 -.502 -3.059 .006
a. Dependent Variable: FDI US $
Interpretation:
Cofficient show that there is a positive relationship between FDI and inflation but negative
relationship appear between FDI and interest rate. It means if inflation increase than FDI also
increase and if interest increase than FDI decrease. It shows the significant result.

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Findings:
From the above analysis, by using co-efficient and linear regression model it is found out that
null hypothesis 1 and 2 is rejected and alternative hypothesis accepted which means there is a
relationship between GDP and inflation and GDP and interest rate while null hypothesis 3 and 4
is also rejected and alternative hypothesis is accepted which means there is a relationship
between FDI and inflation and there is also a relationship between FDI and interest rate.
Null-Hypothesis No 1 & 2: Reject
Alternative-Hypothesis No 1 & 2: Accepted
Null-Hypothesis No 3 & 4: Reject
Alternativ-Hypothesis No 3 & 4: Accepted
With above results of null-hypothesis and alternative hypothesis it is establish that there is a
moderate relationship between inflation rate and economic growth in Pakistan because four null
hypotheses are rejected.

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Conclusion
Achieving stable economic growth is the goal of the nearly all countries. Due to the variety of
issues that affect economic growth it has been nearly impossible to achieve such goal. The most
essential subject of macroeconomic policy is rate of inflation and growth of economy.
This study is about the relationship between inflation and economic growth and interest and
economic growth. The significance of the study is that inflation is major problem in Pakistan
and in all other countries and affect people’s daily life like income, purchasing power, literacy
rate etc and they all cause different effect on economic growth of Pakistan and of other countries
in some way and that further effect in country development. So it’s important that we know how
much of a impact inflation has on economic growth. This paper examines the impact of inflation
rate and interest rate on economic growth by using Linear Regression method over the period of
1990-2015. The results reject the four null-hypothesis of this research because of these result it is
establish that there is a moderate between inflation rate, interest rate and economic growth. This
study shows the negative relationship between inflation and GDP.

32
Recommendations:
 The strategy makers and the State Bank of Pakistan should give attention to on those
options which keep the inflation rate steady and underneath the point which has been
found the useful for accomplishment of steady economic growth.
 Modest and constant inflation is also useful for diminishing the fluctuations and doubts in
the financial sector of economy, which, in turn, increase the assets development behavior
in the country. Thus that it may possibly put forth its encouraging effects on the
economy.
 Sustained price constancy will eventually be the finest strategy suggestion to steady and
constant economic growth of the economy.

33
References:
http://www.theglobaleconomy.com/Pakistan/fdi_dollars/
http://www.theglobaleconomy.com/Pakistan/Inflation/
http://www.gdpinflation.com/2013/01/inflation-rate-in-pakistan-from-2000-to.html
 Inflation and Its Impacts on Economic Growth of Bangladesh (Shapan Chandra
Majumder2016 )American Journal of Marketing Research)
https://www.ijsr.net/archive/v4i11/NOV151272.pdf
 Economic Growth and Inflatio, A panel data analysis (Södertörns University |

Department of Social Science 2012)
http://cgr.umt.edu.pk/icobm2013/papers/Papers/IC3-Dec-2012-083.pdf
Inflation and Economic Growth: Evidence from Pakistan(Shahzad Hussain ,Bahauddin

Zakariya University Multan, Pakistan (2011), International Journal of Economics and
Finance
http://www.bzu.edu.pk/PJSS/Vol31No12011/Final_PJSS-31-1-05.pdf
 Impact of inflation on economic growth (Ayesha Sultan1, Faiza Maqbool Shah 2014),
International Journal of Science and Research (IJSR)
http://www.aessweb.com/pdf-files/363-380.pdf
 Does Inflation Affect Economic Growth? The case of Pakistan (Muhammad Ayyoub ,
Imran Sharif Chaudhry, Fatima Farooq 2011), Pakistan Journal of Social Sciences
(PJSS)
www.ccsenet.org/journal/index.php/ijef/article/download/12340/8885

34
http://www.academia.edu/4262915/Therelationshipbetween inflation and economic growth in

Pakistan
www.sbp.org.pk/repec/sbp/journl/Article-3.pdf
 Evidence from Six South Asian Countries,(Jaganath Behera Research Scholar,

University of Hyderabad 2014) Journal of Economics and Sustainable Development
https://globaljournals.org/GJMBR_Volume14/5-Impact-of-Inflation-and-Economic.pdf
 Relation between inflation and economic growth (Vikesh Gokal Subrina Hanif
December 2004)
http://article.sciencepublishinggroup.com/html/10.11648.j.ijefm.20150305.13.html
 Impact of inflation on economic growth, Acase study of Tanzania (Faraji Kasidii

Kenani Mwakanemela (2013) Asian Journal of Empirical Research
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.516.9478&rep=rep1&type=pdf
https://www.researchgate.net/profile/Gylych_Jelilov/publication/281619014_The impact of
interest on economic growth
http://www.iiste.org/Journals/index.php/JEDS/article/viewFile/15325/15540
 The Effect of Interest Rate Fluctuation on the Economic Growth of Nigeria, (Chris O
Udoka, Phd Anyingang Roland. (2012), International Journal of Business and Social
Science
http://eprints.abuad.edu.ng/923/1/Inflation%2C%20Interest%20Rates%20and%20Economic%2
0Growth%20in%20Nigeria.pdf
 Impact of Macroeconomic Variables on Foreign Direct Investment in Pakistan

(Ahmed Imran Hunjra, Syed Ali Raza2and Muhammad Usman Asif 2013), Bulletin of
Business and Economics,
https://www.projectguru.in/.../inflation-rate-impact-foreign-direct-investment/

35
Appendix
Excel Sheet (1)
Sr.no Years GDP % Inflation Rate % Interest Rate%
1 1990 4.6 9.05 18.5

2 1991 5.6 11.79 15.5
3 1992 7.7 9.51 17.5
4 1993 2.3 9.97 8.5
5 1994 4.5 12.37 13.5
6 1995 4.1 12.34 13.5
7 1996 6.6 10.37 19.5
8 1997 1.7 11.38 13.5
9 1998 3.5 6.23 13.5
10 1999 4.2 4.14 7.2
11 2000 3.9 4.37 14
12 2001 2 3.15 16.5
13 2002 3.1 3.29 16.5
14 2003 4.7 2.91 15
15 2004 7.5 7.44 7.5
16 2005 9 9.06 9
17 2006 5.8 7.92 9.5
18 2007 5.54 7.6 5.31
19 2008 4.99 20.26 6.92
20 2009 0.36 13.65 8.68
21 2010 2.58 13.8 8.15
22 2011 3.62 11.92 8.23
23 2012 3.84 9.69 7.98
24 2013 3.65 7.69 7.17
25 2014 4.03 7.19 7.26
26 2015 4.24 2.54 6

36
Excel Sheet (2)
Sr.no Years FDI (US $) Inflation Rate % Interest Rate%
1 1990 0.25 9.05 18.5

2 1991 0.26 11.79 15.5
3 1992 0.34 9.51 17.5
4 1993 0.35 9.97 8.5
5 1994 0.42 12.37 13.5
6 1995 0.72 12.34 13.5
7 1996 0.92 10.37 19.5
8 1997 0.72 11.38 13.5
9 1998 0.51 6.23 13.5
10 1999 0.53 4.14 7.2
11 2000 0.31 4.37 14
12 2001 0.38 3.15 16.5
13 2002 0.85 3.29 16.5
14 2003 0.53 2.91 15
15 2004 1.12 7.44 7.5
16 2005 2.2 9.06 9
17 2006 4.27 7.92 9.5
18 2007 5.59 7.6 5.31
19 2008 5.44 20.26 6.92
20 2009 2.34 13.65 8.68
21 2010 2.02 13.8 8.15
22 2011 1.33 11.92 8.23
23 2012 0.86 9.69 7.98
24 2013 1.33 7.69 7.17
25 2014 1.87 7.19 7.26
26 2015 0.98 2.54 6

37

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Impact of Inflation on Economic Growth

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Impact of Inflation on Economic Growth

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To reach our dream.

Impact of Inflation on Economic Growth

Date____________ Supervisor: __________

Impact of Inflation on Economic Growth

Impact of Inflation on Economic Growth

Literature Review ............................................................................................. 12

Data Analysis & Interpretation ......................................................................... 26

Impact of Inflation on Economic Growth

Impact of Inflation on Economic Growth

Impact of Inflation on Economic Growth

Impact of Inflation on Economic Growth

• To establish the relationship between inflation and GDP growth rate.

Impact of Inflation on Economic Growth

Impact of Inflation on Economic Growth

Ayesha Sultan1, Faiza Maqbool Shah (2014),

Muhammad Ayyoub , Imran Sharif Chaudhry, Fatima Farooq (2011)

Impact of Inflation on Economic Growth

Södertörns University | Department of Social Science (2012)

SAAED, Afaf A.J.

Impact of Inflation on Economic Growth

Jaganath Behera Research Scholar, University of Hyderabad (2014)

Vikesh Gokal Subrina Hanif December 2004

Impact of Inflation on Economic Growth

Manoel Bittencourt, Monaheng Seleteng and Reneé van Eyden

Faraji Kasidii Kenani Mwakanemela (2013)

Like several countries central objectives of macroeconomic policies in Tanzania is to boost

Impact of Inflation on Economic Growth

Shapan Chandra Majumder (2016)

Shahzad Hussain ,Bahauddin Zakariya University Multan, Pakistan (2011)

Impact of Inflation on Economic Growth

Impact of Inflation on Economic Growth

Chris O Udoka, Phd Anyingang Roland. (2012)

Impact of Inflation on Economic Growth

Chingarande Anna (2012)

Impact of Inflation on Economic Growth

Impact of Inflation on Economic Growth

Independent Variable Dependent Variables

Impact of Inflation on Economic Growth

H0: There is no significant relationship between GDP and inflation.

HA: There is a significant relationship between GDP and inflation.

H0: There is no significant relationship between GDP and interest rate.

HA: There is a significant relationship between GDP and interest rate.

H0 : There is no significant relationship between FDI and inflation.

HA : There is a significant relationship between FDI and inflation.

H0 : There is no significant relationship between FDI and interest.

HA: There is a significant relationship between FDI and interest.

GDP= α+ β1 (inflation) + β2 (interest) + ϵ

FDI= α+ β (inflation) + β2 (interest) + ϵ

Impact of Inflation on Economic Growth

GDP: (Gross Domestic Product)

Foreign Direct Investment (FDI):

Foreign direct investment (FDI) is an investment made by a company or individual in one

Interest rate is the amount charged, expressed as a percentage of principal, by a lender to a

Impact of Inflation on Economic Growth

Data Collection Method:

technique use in this study.

Date__ Supervisor: