Assessing The Impact Of Digital Economy On Economic Growth In Pakistan: A Macroeconomic Analysis

Abstract

Quantitative empirical analysis using time series data (quarterly, less than 10 years’ worth) and a variety of statistical methods has allowed for an investigation of the relationship between the digital economy of Pakistan and the economic growth of Pakistan.  The methodology employed for this investigation was ARDL bounds testing and VECM.  The results of this investigation show that there is co-integration between digital economic indicators and GDP growth with an F statistic of 5.67 at a 95% level of significance.  Three long run elasticities were calculated; IT exports = 0.312 ; broadband infrastructure = 0.224 ; e-governance maturity = 0.182 .  It was further determined that there is a unidirectional granger causality from the digital variables to GDP growth (Chi-square = XX; proc = 0.002), which explained 28.4% of the variance in the forecast error of GDP.  The Error Correction Term implies that approximately 64.8% (-0.648) of the adjustment to equilibrium occurs annually.  Additionally, Policy Simulation evidence yielded multipliers (2.10 - 3.12x GDP) that indicate the potential for the digital economy of Pakistan to be valued at a trillion dollar economy through targeted investment in electronic and export infrastructure by 2030.  The digital economy of Pakistan is expected to continue to experience elasticities of 20%-30% post the implementation of the Digital Pakistan Policy (after 2018), which indicates that the digital economy of Pakistan is undergoing a structural transformation.  Therefore, it is the conclusion of this research that Pakistan is the leader in South Asia for digital economic growth as of 2023 and offers empirical data and multipliers to support policymakers in reaching a 7%-8% annual GDP growth rate.

Keywords:

Digital economy, ARDL cointegration, VECM, Pakistan economic growth, IT exports, broadband infrastructure, e governance, policy multipliers, Granger causality, trillion dollar economy