Assessing the Impact of Fiscal Policy on Economic Growth: A Case Study of Pakistan

Abstract

This paper aims to investigate the role of fiscal policy and some fundamental macroeconomic factors on the economy's growth in Pakistan from 1976 to 2023 by using the ARDL model to analyze both the short and long-term relationship. The study establishes employment and capital accumulation as pivotal growth enablers, inviting more investment in human capital and infrastructure. On the other hand, government expenditure and trade openness have ambiguous results, which once again cement the need for context-specific fiscal and trade strategies. The analysis also highlights Inflation as another challenge and calls for strong measures to enhance price stability. Although foreign direct investment has not brought in a strong positive image for the destination country, the overall stability in the model reinforces the reliability of these understandings. The last section of the study presents policy implications that should be helpful for policymakers seeking to promote sustained economic growth and add substantively to the emerging literature about mechanisms of economic development in emerging economies.