Interest Rate Volatility and Its Impact on Pakistan's Savings, Investment, and GDP Growth: A Quantitative Approach

Abstract

Economic research has some important domains, including economic growth, savings, investment, and interest rates, as they have great strategic priorities, particularly in the confinement of macroeconomic strength and policy formation towards development. This study examined the effects of interest rate on investment, GPD and investments for Pakistan during 1990-2023. The investigation indicates the relationship between the macroeconomic variables both in the long term and the short run, by means of the auto-regressive distributed lag (ARDL) method. The empirical consequences demonstrate thatthe rate of interest negatively affects the investment levels and GDP, which indicates that interest rates decrease constructive investment and show a decline in economic development. On the other hand, interest rate has a positive relation with savings that is experimentally significant, suggesting that an increase in deposit returns increases the savings behavior. However, the outcomes indicate that inflation and unemployment have a negative relationship with economic development, while a positive inter-relation exists among the savings, and GDP and the savings that highly contribute to the progress of the economy. Therefore, according the outcomes, the research depict that the low interest rates can enhance economic growth and investment, which will be a great progress to sustainable development in Pakistan. Overall, the study describes the importance of stable economic policy framework that highly manages interest rate fluctuations to increase the sustainability driven by savings and investment.