Abstract
The objectives of this paper are to critically evaluate causality, vulnerability to innovation of consumption, income and economic growth. In methodological terms the paper uses annual data for the period 1960-2005, taken from Economic Survey of Pakistan (various issues) and International Financial Statistics (2005). Vector Autoregressive (VAR) model with impulse response function (IRF), error variance decomposition and Granger Causality test is used for the analysis. The study showed that any innovation of one standard deviation took seven years for economic growth and more than ten years for consumption and income. The variation in consumption is mostly explained in their own. The variation in income is mostly explained by consumption. The variation in economic growth is slightly explained by consumption and income. Bilateral causality is not found, and mostly independent type relationships are detected. Based on the finding of the study, it is recommended to harmonize fiscal policies with monetary policy. The gap between policy formation and its implementation specifically in monetary policy required to reduce. Through fiscal policies the government can easily enhance income, consumption level, productive capacity of the economy, employment opportunities and reduce poverty level. But at the same time effective managing of monetary and fiscal policies are needed to accommodate the enhanced consumption from indigenous production rather than concentrating on import.
Dr. Abdul Qayyum Khan, , Dr. Muhammad Azam, Abdul Wali Khan. (2009) Inter-Dependency and Causality in Consumption, Income and Economic Growth in Pakistan (1960-2005), Journal of Managerial Sciences, Volume 3, Issue 1.
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