Macroeconomic Dynamics of Inflation: Assessing the Roles of Economic Growth, FDI, and External Debt in Pakistan

Abstract

This study explores the intricate dynamics between inflation and key macroeconomic variables, specifically economic growth, foreign direct investment (FDI), and external debt, in the context of Pakistan. Utilizing time-series data from 1990 to 2022, the research employs econometric models to evaluate the short-term and long-term impacts of these variables on inflation. The findings reveal a complex relationship wherein FDI and external has positive and significant effects on inflationary pressures, while economic growth and population has negative impact on inflation both in short and long run. This research offers empirical insights into these linkages, enhancing the knowledge of inflation's macroeconomic determinants in developing economies such as Pakistan. The findings hold significant consequences for governments seeking to reconcile growth, entice international investment, and regulate external debt while avoiding inflationary pressures. Discussions revolve around recommendations for sustainable macroeconomic policy, emphasizing the attainment of price stability and the promotion of economic progress.