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Finance Thesis

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INDUS INSTITUTE OF HIGHER EDUCATION KARACHI

Impact of inflation on economic growth :an overview on Pakistan[FINANCE THESIS][IQRA IRSHAD] [B.B.A :08-A]

SUPERVISED BY : SIR NAWAZ AHMED

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Turnitin Originality ReportImpact of inflation on economic growth: an overview on Pakistan By Iqra Irshad (ID- 5-2008 BBA-08A)

Processed on 07-Feb-2012 10:26 PKT ID: 227954564 Word Count: 7336

Similarity Index 2% Similarity by Source Internet Sources: 1% Publications: 0% Student Papers: 1% Sources: 1

________________ Javed Iqbal Focal Person Plagiarism Services

______________ Nawaz Ahmed Thesis Supervisor IIHE

____________________ Usman Ali HOD Business Administration

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Faculty of business administration

INDUS INSTITUTE OF HIGHER EDUCATION KarachiCERTIFICATEI am pleased to certify that Ms Iqra Irshad D/o Mohammad Irshad has satisfactorily carried out a research work, under my supervision on the topic of impact of inflation on economic growth:an overview on pakistan. I further certify that her distinctive original research and her thesis is worthy of presentaton to the faculty of management sciences, INDUS INSTITUTE OF HIGHER EDUCATION Karachi for the degree of B.B.A (FINANCE).

SUPERVISOR:

_________________________

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ACKNOWLEDGEMENTI would like to thank Mr Nawaz Ahmed my supervisor who has given me Many useful comments related to my topic. After his guidence I am able to complete my thesis through his step by step support for my research work.Also I would like to thanks to Mr Javed Iqbal who checked my work on short term notice and appreciat my work by both of persons also a lot of detailed and valuable comments on this thesis. The same appreciations will be for members from my thesis group and for the teacher and members from my groups in course.

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DEDICATIONThis thesis is dedicated to my parents who introduced me to the joy of reading from birth enabling such a study to take place today.

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TABLE OF CONTENTS

Abstract. 5 SECTION 1. Introduction. 6 2. LiteratureReview. 14 2.1 empirical review.15 3. Hypothesis.. 30 4. Variables..30 5. Model and frame work 30 6. Methodology.. 31 6.1 model specification and estimation technique.. 33 7. Results and discussions.. 35 7.1 Data and summary output..... 36 8. Conclusions ... .38 TABLES REFERENCES . 40 APPENDIX. 43

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ABSTRACTThe thesis is to find out the impact of inflation on economic growth in Pakistan by using the data from 1950 to 2010. This thesis uses the regression linear model to find out the impact on gdp growth. This study is basis on manzoor hussain who,s findings are insignificant and also similar to singh (2003) which recommands that the rising prices within 4 to 6 % is favorable for pakistan and central bank should keep the policies favorable for the growth. As my findings+ are insignificant that there is no impact of inflation on economic growth.

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INTRODUCTION:Last many year research work on economics has described many reasons of relationship between rising price and economic increase. One major purpose of this research work after identify the rising price is bad thing to economic increase get the week points or effected points. Some research define a threshold rate of rising price above the economic increase is negative and significant due to rising price effects, while the positive level of economics increase is below level of threshold rate of rising price. Even so, as the important results by the previous research work on many different purposes across the countries these results are shows that when the rising price is effect on economic increase there is no general agreement over the point. This document described the major point is that using a regressing formula there is many possible reasons available of inflationary effects on the relationship between economic increase and financial sector development. In general macroeconomics holds that to promote economic increase the combination of low rising price and financial development is a common factor without this combination we cannot promote economic increase. The interesting and debate article is the question of nature connection between financial development, economic increase and rising price. This is also true that this topic and the relationship between these three variables is already using in debates and research point of view. In Large general agreements about connects of these three variables economic increase, rising price and financial development has been reached. Commonly the concept of long term 8

and medium term reaction of rising price, product increase and reducing investment on economic increase is negative. The major aim of policymakers is low rate of rising price if rising price is a main blockage of promoting economic increase, Even so what is the target level of rising price is? How rising price low level is positive impact on financial development and on economic increase? In the other way it is possible to obtain the threshold level of rising price point if a non-linear relationship found between rising price and economic increase, and what is the sign of relationship between rising price and economic increase would controlled. Fischer was first identified the non-linear relationship, he found that at low level of rising price rate the long term relationship between rising price & economic increase is positive, and at high level of rising price rate it become negative. Accordingly the very deep study about the non linear economic increase and rising price, there are many possibilities and factors that explain the existence of rising price threshold effects on the relationship between economic increase and financial development, nowadays the deep study and theoretical research about relationship of economic increase and rising price suggests that promoting the economic increase the financial market playing an important role. Thus we can say that financial market activity goes down and up if changes in the rate of rising price, it is possible that some changes would have long term real activities implication. Moreover these theoretical studies provide strong evidence to prove that financial developments promote economic increase under the moderate and low rate of rising price. Causality test tells the relationship about rising price and economic increase 9

causality. According to Okuyan and Erbaykal there is casualty found in relationship of rising price to economic increase and also tells there is no causality connection found between economic increase and rising price. On the opposite in nature, financial development dose no produced any type of effect on economic increase under high rising price environment. The basic reason of this situation is that in a rising price environments investment project information flow and intermediates returns being used become less readily available and unsure of himself and his future. Suppress a nascent uprising

economic development due to information costs and rising price increases transactions. High rising price conditions can put out of one's consciousness financial intermediation by grinding something down the unimportant of money assets and policy decisions become a cause distort the financial structure. The following accepted customs and proprieties view in microeconomics holds that changes in the rate of rising price by nature. These changes in the long terms do not affect real activity. Even so the expert view of solution terms that even in the long term period the rising price high rates can have made a place for themselves under the most untoward conditions for real economic increase. In these days the major topic amongst economists is that the problem of aggregate economic performance and some individuals is high rates of rising price. Even so there is a very few general agreements about the characterized by perfect conformity to fact or truth between relationship economic increase performance and rising price and by the method in which rising price effects on economic increase. The effects of long term activity increase in rising price rates is very alarming point. The general agreement 10

about the an opposing direction effects of rising price on real economic increase show only a some part of the complete picture. In some previous researches has focused on the non-linear relationship between rising price and economic increase. The first condition is at lower rate of rising price in this condition the relationship is not important in effect or even positive on economic increase but at higher rates of rising price has important negative effect on economic increase.

What level of inflation is harmful to growth?Theory

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Basically economic research theories results based on about the outputs of economic increase to rising price. These economic theories are very useful because the concept of these theories based on observed hypothesis. Historically in the missing word meaning of term Continually recurring to the rising prices the early researches about the rising price and economic increase were built on cyclical results, continually recurring to the rising prices is regarded as a post world war 2 reasoning. In advance of then, rising price rounds were followed by turn of deflations. Rising price act like a lazy dog that is not doing anything like upward level and downward level trend. The rising price level doing nothing but it is stable in a exceptional level unless and until there is any perturbation. Thenceforth, the rising price moves to another level at which rising price determines. Theory, thus being searched for account a positive correlation position between rising price and economic increase. The aggregative supply and aggregative requirement model also tells that positive beha