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The Effect Of Exchange Rate Fluctuations On Trade Balance Of Pakistan

Author

Listed:
  • Arshad Ullah Jadoon

    (Northeast Normal University Changchun china)

  • Yangda Guang

    (Northeast Normal University Changchun china)

Abstract

This main goal of this study is to check the exchange rate fluctuations and its impact on trade balance in Pakistan. The annual time series data from 1971 to 2016 is used to check the short run and long run relationship between Exchange rate fluctuations trade balance of Pakistan. We employed the autoregressive distributed lag approach and results reveal that Exchange rate has positive and significant relationship with balance of trade in long run and short run. Devaluation of Pakistani rupees against USD, would increase the exports and ultimately trade balance will enhance. The inflation and money supply has negative and significant relationship with balance of trade in long run in Pakistan. The excess of money supply will increase inflation which reduces the exports and consequently, balance of trade would decrease. This study has a policy implications for government as well as local and foreign investors. The government should also play an important role to make such strategies which can increase the balance of trade in Pakistan and can boost the economic growth of Pakistan indirectly.

Suggested Citation

  • Arshad Ullah Jadoon & Yangda Guang, 2019. "The Effect Of Exchange Rate Fluctuations On Trade Balance Of Pakistan," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 8(1), pages 68-80, June.
    • Handle: RePEc:sek:jijoes:v:8:y:2019:i:1:p:68-80
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    References listed on IDEAS

    as
    1. Shah, Anwar & Majeed, Muhammad Tariq, 2014. "Real Exchange Rate and Trade Balance in Pakistan: An ARDL Co-integration Approach," MPRA Paper 57674, University Library of Munich, Germany.
    2. Himarios, Daniel, 1989. "Do Devaluations Improve the Trade Balance? The Evidence Revisited," Economic Inquiry, Western Economic Association International, vol. 27(1), pages 143-168, January.
    3. Dodzin, Sergei & Vamvakidis, Athanasios, 2004. "Trade and industrialization in developing economies," Journal of Development Economics, Elsevier, vol. 75(1), pages 319-328, October.
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    More about this item

    Keywords

    Exchange rate; Balance of Trade; Inflation; Money Supply; exports.;
    All these keywords.

    JEL classification:

    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
    • F10 - International Economics - - Trade - - - General

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