Role of Infrastructure in Economic Growth: A Case Study of Pakistan

Abstract

The main objective of this study is to find out impact of infrastructure on economic growth of Pakistan. In this regard, time series data has been collected from 1972 to 2009 and Gross Domestic Product (GDP) is considered as dependent variable, while Gross Fixed Capital Formation (GFCF), Per Capita Health Expenditure (PCHE) and Total Generation of Electricity (TGE) used as proxy for infrastructure. After collection of data on above cited variables, stationarity of all variables checked by Augmented Dickey Fuller (ADF) test and found that all variables are non-stationary at their levels and become stationary at their first difference. When all the variables are integrated of same order then we applied Johensen Cointegration to detect long run association between the variables and found the there is no long run relationship exists. Then we apply Ordinary Least Square (OLS) to find short-run relation between variables and found that infrastructure is positively and significantly contributing in Pakistan. However, all the assumptions also checked to avoid the problem of spuriousness. On the basis of our empirical findings, its suggested that government and policy makers should focus for the development of infrastructure, and infrastructure is contributing in economic growth both directly and indirectly.