The Impact of Interest Rate, Investment, Inflation and Consumption and on GDP of Selected SAARC Member Countries (India, Pakistan, Bangladesh and Sri Lanka) from 2001 to 2022

Abstract

Economic growth, as a main objective of macroeconomic policymaking in developing countries, necessitates a precise identification of the key macroeconomic determinants of GDP. This study investigates the effects of interest rates, investment, inflation, and consumption on the GDP of selected SAARC countries (India, Pakistan, Bangladesh, and Sri Lanka) over the period 2001–2022. The empirical analysis employs a panel data framework; following stationarity tests and the absence of evidence for a long-run equilibrium relationship among the variables, the model is estimated in first differences using the fixed effects specification. To ensure efficiency and reliability of the estimated coefficients, the EGLS method with Panel-Corrected Standard Errors (PCSE) is applied. The results indicate that investment exerts a positive and statistically significant impact, whereas inflation has a negative and significant effect on GDP in the studied countries; in contrast, interest rates and consumption do not exhibit statistically significant effects on economic growth during the analyzed period. Overall, the findings underscore the crucial role of productive investment and the necessity of maintaining price stability as fundamental preconditions for sustainable economic growth in South Asia, providing an empirical basis for evidence-informed economic policymaking in the region.