An Effect of Money Supply on Economic Growth: Evidence from Pakistan

Abstract

This paper focuses on effects of money supply on GDP of Pakistan. The macro variables comprise of GDP and money supply were tested by using secondary data, covering forty six yearly period from 1972 to 2018. The current study applied unit root test to test stationary of the given data. The Auto Regressive Distribution Lag (ARDL) approach was conducted to see the link between long run and short run relationship as a speed of adjustment to the long run equilibrium. The finding showed that money supply (MS), capital investment (CI), labour force (LF) and Gross Domestic product (GDP) were stationary with I(1) level and inflation (INF) was stationary with I(0) level.  Positive effect on GDP has been observed in case of Pakistan. The finding suggests that policy makers should take into consideration the different monetary policy tools to control the excess money supply and to get the economic stability.