The Role of Infrastructure Investment in Shaping Employment in Pakistan, An Econometric Analysis (1985–2015)

Abstract

Purpose: This study investigates the relationship between infrastructure investment and employment in Pakistan while incorporating key macroeconomic control variables, including foreign direct investment (FDI), gross domestic product (GDP), gross fixed capital formation (GFCF), per capita household expenditure (PCHE), wages, inflation, and trade openness. Design/Methodology/Approach: A composite index of infrastructure was developed using Principal Component Analysis (PCA), based on six indicators: road networks, railway lines, air transport, electricity generation, telephone connections, and mobile phone subscriptions. The analysis employed annual data from 1985 to 2015, sourced from the State Bank of Pakistan and the World Development Indicators. Descriptive statistics, Johansen co-integration, correlation, and ordinary least squares (OLS) regression were applied. Findings: The results reveal that infrastructure has a significant positive impact on employment. Similarly, GDP, wages, PCHE, inflation, and trade openness demonstrate favorable effects, while FDI and GFCF exert a negative but significant influence, suggesting underlying structural challenges. Implications/Originality/Value: The study contributes by offering a multidimensional index of infrastructure and highlighting its role in employment generation. The findings provide valuable guidance for policymakers and investors in designing strategies to enhance infrastructure-led growth and labor market opportunities in Pakistan.