Digital Export Intensity, External Inflows, and Domestic Demand as Drivers of Economic Growth in Pakistan: An ARDL Approach

Abstract

Pakistan's efforts to achieve long-term economic growth are becoming more and more reliant on its ability to export digital goods, foreign financial inflows, and local demand. However, empirical research is necessary to determine these factors' short- and long-term contributions to economic growth. This study looks at how workers' remittances (REM), gross fixed capital formation (GCF), foreign direct investment (FDI),  household consumption (CON), and digital export intensity (DEI) affect Pakistan's GDP growth from 1993 to 2025. Using an error correction model (ECM), the autoregressive distributed lag (ARDL) technique has been used to inspect short-term dynamics along with long-term associations. Serial correlation, heteroskedasticity, and functional form specification tests are used to evaluate the reliability of the model. According to the long-run estimations, there are positive and statistically significant relationships between economic growth and DEI (0.699, p = 0.026), FDI (0.956, p = 0.023), GCF (2.301, p < 0.001), and household consumption (0.204, p = 0.026). The significance of capital accumulation is highlighted by GCF's greatest estimated coefficient. Remittances, in contrast, have a constructive but statistically insignificant coefficient (0.092, p = 0.449). The model is jointly significant and accounts for 86.7% of the growth variation. Rapid adjustment toward long-run equilibrium is indicated by the error correction coefficient, which is negative and significant (-0.802, p < 0.001). There is no discernible evidence of heteroskedasticity, serial correlation, or functional form misspecification according to diagnostic testing. The results highlight how crucial it is to boost domestic demand, increase capital creation, draw in profitable FDI, and improve digital export capacity. However, the negligible remittance coefficient raises the possibility that, in the absence of efficient investment channels, foreign transfers by themselves would not result in long-term growth. Therefore, policies that encourage profitable investment and digital export competitiveness may improve Pakistan's long-term growth prospects.