Exploring Determinants Of Balance Of Trade In Case Of Pakistan
Author: Arshad Badar

The study aims to provide the true model of balance of trade for Pakistan among the existing models constructed by the researchers at national level based on annual time series data from 1979 to 2016. Initially we have applied encompassing technique on six existing models of balance of trade to construct general unrestricted model (GUM). The general model extended by the variables of oil prices, domestic investment and government spending to analyze the impact of these variables on trade balance of Pakistan. The general to specific methodology have applied on the resultant model which provided the specific model. It is tested through unit root analysis that all the variables are integrated of order one. Therefore, Johensen and Juselius (1990) cointegration technique have applied on the specific model to observe the long run and short run relationship between the trade balance and its determinants. The estimated results proposed that oil prices and domestic investment did not affect the trade balance of Pakistan while government spending have negative significant impact on trade balance. Wherease, Gross domestic product, foreign direct investment, real effective exchange rate and government spending significantly affect the trade balance in the long run while in the short run only gross domestic product affect the trade balance of Pakistan. Consequently, to boost the trade balance in Pakistan government should encourage the foreign direct investment in Pakistan and should not rely on exchange rate depreciation as it worsen the trade balance. Furthermore, government should take steps to increase growth of gross domestic product which will have the positive impact on trade balance of Pakistan. Supervisor:- Dr. Hafsa Hina

Meta Data

Keywords : Cointegration, Encompassing, Error Correction Model, General to Specific Model, Parameters consistency., Parameters stability, Trade Balance, Unit root
Supervisor: Hafsa Hina

Related Thesis​