Leading Issues in the Economy of Pakistan: Agenda for Reforms The Macroeconomic Model has been used to quantify the role of different factors in influencing the growth rate of real private investment in the country. The results are presented in Table 1.5. Table 1.5: Impact of different factors on Growth Rate of real Private Investment 2007-08 to 2012-13 to 2012-13 2017-18 Growth Rate of Real Private Investment(%)-2.8 5.5 Growth Rate of Real GDP (the‘accelerator’) 2.0 4.6 Rise in Real Interest Rate on Bank Advances-1.1-1.3 Rise or Fall in the Relative Price of Imported Machinery-2.1 1.3 Rise or Fall in the Rate of Corporate Profitability-0.3 1.4 Impact of Negative Factors (Power loadshedding, terrorism, COVID-19) -1.3-0.5 (%) 2017-18 to 2021-22 -1.2 2.5 0.2 -2.1 -0.3 -1.5 During the period, 2007-08 to 2012-13, the‘accelerator’ effort on private investment was more than neutralized by a rise in the real interest rate on bank advances, big jump in the rupee price of imported machinery, fall in corporate profitability, the high incidence of power loadshedding and acts of terrorism. These were indeed difficult years for the private sector of Pakistan. In contrast, the years, 2012-13 to 2017-18, saw an average growth rate of 5.5 percent annually in the level of real private investment. The accelerator effect was stronger, import prices of machinery in rupees did not rise much due to the less depreciation in the value of the rupee and corporate profitability rose significantly. The level of real private investment fell marginally from 2017-18 to 2021-22. Interest rates were brought down sharply after COVID-19. The largest negative impact is due to the escalation in the cost of imported machinery due to the continuing process of devaluation of the rupee. Also, the spread of COVID-19 initially discouraged further expansion in capacity. 1.5 Employment A critical measure of performance of governments is the creation of more employment opportunities for the people. The growth in employment hinges crucially on the rise in output in different sectors of the economy. This relationship is measured by the employment to output elasticity, which indicates the percentage increase in employment with a 1 percent increase in output. The Macroeconomic Model has enabled the determination of the long-run average elasticity, which is given below for the three productive sectors respectively: 10