A Search for an Optimum Currency Area Partners for Pakistan

Farooq Rasheed () and Javed A. Ansari
Additional contact information
Javed A. Ansari: Pakistan Air Force Karachi Institute of Economics and Technology, Karachi.

The Pakistan Development Review, 2004, vol. 43, issue 4, 793-811

Abstract: This paper empirically examines the existence of a common trend between the exchange rates of Pakistan and four regional countries (Bangladesh, India, Saudi Arabia, and Sri Lanka) with two of their major trading partners (the United States and Japan) as base countries. Results from cointegrating analysis show that the strongest evidence points to the existence of common stochastic trends between the Pakistani rupee, on the one hand, and the Bangladeshi Taka and the Sri Lankan rupee, on the other hand. There is no strong evidence for the existence of a common stochastic trend between the Pakistani rupee and the currencies of India and Saudi Arabia. Optimum Currency Area (OCA) theory seems to justify the formation of a currency union between Pakistan, Bangladesh, and Sri Lanka. The case of a currency union between Bangladesh and Pakistan is strengthened by a shared political past and a shared history of financial institutional development. The immediate impact of the formation of such union on Pakistan’s GDP growth will however be insignificant.

Keywords: Currency; pakistan (search for similar items in EconPapers)
Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.pide.org.pk/pdf/PDR/2004/4/PartII/Farooq%20Rashid.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pid:journl:v:43:y:2004:i:4:p:793-811

Access Statistics for this article

More articles in The Pakistan Development Review from Pakistan Institute of Development Economics Contact information at EDIRC.
Bibliographic data for series maintained by Khurram Iqbal ().