Dynamics of Current Account Deficit: A Lesson from Pakistan

Syed Tehseen Jawaid () and Syed Ali Raza ()

MPRA Paper from University Library of Munich, Germany

Abstract: This study investigates the determinants of current account deficit in Pakistan by using the annual time series data for the period 1976 to 2010. The cointegration results suggest the positive and significant long run relationship of current account deficit with exchange rate, trade deficit and fiscal deficit, while significant negative relationship is found with external debt and private saving. The error correction model also confirms the significant positive relationship of current account deficit with exchange rate, trade deficit and fiscal deficit in short run. The Granger-causality test shows the bidirectional causality run from exchange rate and external debt to current account deficit. However, unidirectional causality is found from current account deficit to external debt and fiscal deficit. It is recommended that government needs to be cautious in financing its fiscal deficit. Savings habits should be increase to narrow the investment gap in economy.

Keywords: Current Account; Saving; Fiscal Deficit; Trade Deficit; External Debt; Exchange Rate (search for similar items in EconPapers)
JEL-codes: E62 F32 E21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-opm
Date: 2012-02-10
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Journal Article: Dynamics of Current Account Deficit: A Lesson from Pakistan (2013)
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