Prospects for connectivity and integration between Pakistan and ASEAN + 3 + 3 countries through the lens of optimal currency area theory

Jamshaid Ur Rehman (), Muhammad Nadeem Javaid () and Nisar Ahmad ()
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Jamshaid Ur Rehman: Government College University Lahore
Muhammad Nadeem Javaid: Karachi School of Business and Leadership (KSBL)
Nisar Ahmad: University of the Punjab

Quality & Quantity: International Journal of Methodology, 2025, vol. 59, issue 3, No 36, 2825-2859

Abstract: Abstract This study explores the feasibility of forming an optimal currency area (OCA) within the ASEAN + 3 + 3 group, including Pakistan, using the extended generalized purchasing power parity (G-PPP) theory. The objective is to determine whether these countries share a common stochastic trend and could form a stable OCA, considering the impacts of the Asian Financial crisis (AFC) and the Global financial crisis (GFC), with the US, China, and Japan serving as base countries, as predicted by G-PPP theory. The analysis employs the Johansen (Econ J 3:215–49, 2000) methodology, incorporating up to two exogenous structural breaks. The results suggest the presence of 127 out of 179 long-run G-PPP relationships with Pakistan, indicating greater potential for an OCA within sub-groups of countries that include Pakistan in the ASEAN + 3 + 3 setting. Stability tests confirm the parameter stability for Pakistan’s integration with ASEANBig5 + 3 + 3 countries in the post-AFC period.

Keywords: OCA; G-PPP; Monetary integration; Structural breaks; Dummy variables; Cointegration (search for similar items in EconPapers)
JEL-codes: C26 C30 F31 F33 F36 F41 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11135-025-02085-y

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