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Factors affecting trade deficit in Pakistan, India and Bangladesh

Author

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  • Muhammad Shahid Hassan

    (University of Management and Technology)

  • Ayesha Wajid

    (University of Management and Technology)

  • Rukhsana Kalim

    (University of Management and Technology)

Abstract

This study explores factors that affect trade deficit in Pakistan, India and Bangladesh. After applying ARDL bounds testing approach on sample period from 1972 to 2013, this study finds evidence of long run relationship between trade deficit and its factors in Pakistan, India and Bangladesh. The findings confirm that depreciation of real effective exchange rate significantly decreases trade deficit in Pakistan and Bangladesh. Moreover, the results further disclose that as economic growth expands, trade deficit shrinks significantly in Pakistan, India and Bangladesh. The findings also show that money supply significantly enhances trade deficit in Pakistan and India. These findings are robust to various diagnostic tests which are used in the present study. Finally based on these results, it is concluded that trade deficit could be improved by targeting real effective exchange rate, per capita income and money supply in Pakistan, India and Bangladesh.

Suggested Citation

  • Muhammad Shahid Hassan & Ayesha Wajid & Rukhsana Kalim, 2017. "Factors affecting trade deficit in Pakistan, India and Bangladesh," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 34(2), pages 283-304, August.
    • Handle: RePEc:spr:epolit:v:34:y:2017:i:2:d:10.1007_s40888-017-0053-7
    DOI: 10.1007/s40888-017-0053-7
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    References listed on IDEAS

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    3. Rabeya Khatoon & Md Emran Hasan & Md Wahid Ferdous Ibon & Shahidul Islam & Jeenat Mehareen & Rubaiya Murshed & Md Nahid Ferdous Pabon & Md. Jillur Rahman & Musharrat Shabnam Shuchi, 2022. "Aggregation, asymmetry, and common factors for Bangladesh’s exchange rate–trade balance relation," Empirical Economics, Springer, vol. 62(6), pages 2739-2770, June.
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