Nexus between China-Pak Business Cycle Synchronization and Human Development in Pakistan

Abstract

This study has examined the potential impact of China-Pak business cycle synchronization on human development in Pakistan. Data covered the time span of 1975-2017. Other independent variables include inflation, GDP per capita, external debt and FDI. Results of unit root test showed that all variables were stationary with mixture of level and first difference. F-bounds test confirmed the presence of long run relationship among the variables. ARDL technique was applied to obtain long run coefficients. The study found that FDI and GDP per capita had positive and significant impact on human development while China-Pak business cycle synchronization, inflation and external debt had negative and significant relationship with human development in Pakistan. Results showed the value of error correction term -0.16 with 1 percent level of significance which confirmed the presence of short run equilibrium in the model. All independent variables had significant relationship with human development in the short run. CUSUM and CUSUMSQ stability tests showed that parameters of the model were stable. The study suggested that government should focus critically China-Pak business cycle synchronization to uplift human development in Pakistan for which domestic production should be promoted to facilitate domestic producers that might be helpful to improve employment level which finally can raise human development. Control on inflation is significant for the sake of human development. Policy makers should take steps for improvement in GDP per capita and FDI to encourage human development in Pakistan.