Dynamic Relationship Between Inflation, Exchange Rate, FDI and GDP: Evidence from Pakistan

Pakistan is highly influence with the crises of low exchange rate and inflation. The purpose of this study is to check the effect of foreign direct investment and real exchange rate on the growth rate of Pakistan. The data is composed for this study has time duration of 1980 to 2016 from world development indicator. The current study includes the unit root test for checking the stationaity of the data and then ARDL regression is applied. This study includes the causality which shows the bidirectional and unidirectional relationship among the variables. The results show that both log run and short run relationship. In short run relationship the GDP is positively influences with the dependent variables. The REF and FDI stimulates the growth rate of the country while in short run there is a weak relationship between GDP, Real exchange rate and inflation . This paper also check the constancy of the model and the model is stable at 5% significance level