Fundamentals of Real Exchange Rate: Examining Dutch Disease Presence in Pakistan
Author: Nayab Fatima Hina

The phenomena of Dutch Disease have profound implications in both developed and developing countries but have been serious issue of the developing nation. The in-depth understanding of this issue particularly, related with the Pakistan’s economy point of view requires the further statistical analysis that may be helpful in policy framework. In addition, the motivational factors compelled us to stumble on association among fundamentals of real exchange rate in Pakistan’s economy that test the Dutch Disease hypothesis. The objective of the thesis is to find out how capital inflows in the form of Foreign Aid appreciates real effective exchange rate and causes Dutch Disease in Pakistan. It also aims to understand the economics of tradable and non-tradable, identifying the drivers of RER, examining the impact of fundamentals (long and short run factors) on RER for exports, imports and internal and examining the Dutch disease presence in Pakistan for the period from 1979-2012. Further stationarity of data has been checked by using Augmented Dickey Fuller Test then Johansson Likelihood Method has been used for examining the long run relationship between the factors of real exchange rate for import, export and internal. Finally Vector Error Correction Model was used to analyze the short term relationship of long run fundamentals of real exchange rates of import, export and internal. It is concluded that, the short run and long run factors of real exchange rate in Pakistan were found out and in this way the symptoms of Dutch disease was identified. The degrees of misalignments in the real exchange rate in exports, imports, internal and real effective exchange rate were identified. The co integration analysis was used for the identification of long run fundamentals of real exchange rate in exports, imports and internal in Pakistan Supervisor:- Dr. Zaffar Moeen Nasir

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Keywords : Exchange rate, Exchange Rate Fundamentals, Exchange Rates-Pakistan
Supervisor: Zafar Mueen Nasir

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