Inflation and Sustainable Human Development: Assessing the Role of Public Expenditures in Threshold Effect
Keywords:
Inflation, Public Expenditure, Human Development, Threshold, PakistanAbstract
Economic growth is limited to raising GDP, whereas the choices made by individuals influence human development. Several economic needs to be proved to hamper economic growth. Throughout history, determining the ideal degree of inflation has been crucial to achieving the best potential results in human advancement. The relationship between inflation and human development in Pakistan is analyzed to see if a threshold effect exists. To address the following question, public social service regulation can modify the threshold effect of inflation for sustainable human growth, even in the case of public expenditure restriction. Using annual data from 1972 to 2022, Khan & Senhadji's (2001) methodology is utilized for threshold estimation, and the Error Correction Mechanism (ECM) approach is used for co-integration. In order to understand the threshold impact between inflation and human development, it is imperative to address the holes in current research on the subject. Several studies indicate a threshold level of 9% for inflation and economic growth in Pakistan, which is significantly lower than the empirical data. Human development is negatively affected by inflation beyond this threshold. The report suggests that an inflation rate of more than 3% negatively impacts Pakistan's sustainable human development. Inflation and human progress can intersect at different points when government social services increase purchasing power. To calculate the threshold level of 14%, the current analysis uses public spending on social services. Improved provision of social services such as drinking water, sanitation, health care, and education can mitigate inflation's adverse effects.
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