DOES INFLATION MATTER FOR SECTORAL GROWTH IN PAKISTAN? An Empirical Analysis

The present study makes vigorous attempt to analyze empirically the impact of inflation on sectoral growth of Pakistan. Three major sectors (i.e. agriculture, manufacturing and services) have been selected for analysis and study employed annual time series data started from year 1972 to 2010. It is found that impact of inflation on sectoral output differs substantially according to the nature of the sector. Prevailing inflation is harmful to the manufacturing sector growth; whereas, the effect of inflation on services sector growth is in sharp contrast with the manufacturing sector growth results. The statistically significant positive impact of inflation was found to encourage the services sector growth. It is observed that inflation and agriculture sector growth is positively and significantly related. It is suggested to restrict the inflation in a single-digit zone; so that it may put forth its positive impact on sectoral growth. Moreover, it is also concluded that the very low level of inflation in the economy may not be beneficial to the growth of agriculture and services sectors in Pakistan.