The Harberger-Laursen-Metzler Effect: Evidence from Pakistan

Tayyaba Idrees () and Saira Tufail ()
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Tayyaba Idrees: MPhil Student, Department of Economics, Fatima Jinnah Women University, Pakistan.
Saira Tufail: Lecturer in Economics, Department of Economics, Fatima Jinnah Women University, Pakistan.

Lahore Journal of Economics, 2012, vol. 17, issue 2, 87-110

Abstract: According to the Harberger-Laursen-Metzler (HLM) effect, an exogenous temporary increase in the terms of trade leads to an improvement in the current account balance. This paper uses a recursive vector autoregression to investigate empirically the existence of the HLM effect in Pakistan, using a time series dataset for the period 1980–2009. Two important results emerge. First, real income deteriorates with an improvement in the terms of trade. Second, the current account balance also responds negatively to innovations in the terms of trade, which implies that the HLM effect does not exist in Pakistan.

Keywords: Terms of trade; current account; economic growth; recursive VAR; Pakistan (search for similar items in EconPapers)
JEL-codes: C3 F32 F41 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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