Stock Market Performance and its Impact on Economic Growth of Pakistan

Abstract

The purpose of study is to evaluate the impact of performance of Pakistan’s stock market on its economic growth. The quarterly time series data have used from Q_1:2000 to Q_2:2024. Applying the HEGY Seasonal Unit Root test, Johansen Co-integration and Vector Error Correction Model (VECM). However, the variables are used in the study are Industrial Production Index (IPI) as a dependent variable, while the other macroeconomic indicators, stock market index (KSE-100 Index), interest rate (IR), and real exchange rate (RER) are dependent variables. The statistical findings reveal a conclusion that all variables confirmed the long run relationship and have a significant impact on economic growth. Findings show a negative impact of stock market index and the interest rate on economic growth in the long run, a 1% increase in these variables discourages economic growth by 0.13 and 0.0094 units respectively. But interest rate shows a positive impact in the short run. The negative impact would be the reason that these economic indicators do not promote the development of country. Meanwhile, the real exchange rate discloses a positive impact on economic growth showing a 1% increase causes to accelerate economic growth by 0.299 units in the long run. Further, our home industries are reluctant to compete with international ones, which provide cheaper products than home made products.