Impact of Exchange Rate, Budget Deficit and Money Supply on Economic Growth: An Analysis from Pakistan

Abstract

As a small economy, Pakistan is actually or meaningfully feeble to the external shocks with its trade relations regarding trade. The economic strategy has a significant effect on the exchange rate policy for Pakistan.  In this research, we have tried to highlight effects of exchange rate, budget deficit and money supply on economic growth of Pakistan by using data from 1986 to 2024. The economic growth was used as dependent variable. However, exchange rate, budget deficit, money supply and trade openness were taken as independent variables. The authors have used OLS regression model for this analysis. The findings showed that exchange rate has increased economic growth of Pakistan economy. Moreover, trade openness affected positively the growth of the economy. Finally, money supply has also increased the welfare of the economy. In addition to it, budget deficit has resulted in decreased growth in this analysis. The study suggested for more stable environment for increasing investment, production and economic growth. There should be more capital accumulation for more growth. Additionally, country must improve the volume of exports and trade to have more economic growth. Finally, there should be less domestic shocks.