The term of trade (ToT) volatility has an association with low economic performance in developing countries but no research work explores the case of Pakistan in this context. This dissertation aims to examine the short-run and long-run relationship between terms of trade volatility and output growth of Pakistan. The current study also contributes to the literature by observing the possible importance of development in the financial sector of Pakistan in macroeconomic volatility. Using the time-series data of 45 years from 1973 to 2017, the current study adopts the ARDL bound testing approach for analysis. The estimated results suggest a negative and statistically significant effect of ToT and volatility of ToT on the economic growth of Pakistan. Furthermore, the estimate found that development in the financial sector plays an essential role in Pakistan and can absorb the ToT and its volatility shocks to the economy. The conclusion of this study unveils that volatile ToT is harmful to the economic growth of Pakistan. It means that favorable ToT and less volatility in ToT is the need of time and essential for better economic performance. This estimation will be useful in finding the contents of import and export by which ToT deteriorates overtime and form growth enhancing policies. Supervisor:- Dr. Nasir Iqbal