What Determines Balance of Payments: A Case of Pakistan

Syeda Batool, Tahir Mehmood () and Atif Khan Jadoon ()
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Tahir Mehmood: University of the Punjab, Postal: Office of Research, Innovation and Commercialization Sukkur Institute of Business Administration Airport Road Sukkur-65200, Sindh Pakistan
Atif Khan Jadoon: University of the Punjab, Postal: Office of Research, Innovation and Commercialization Sukkur Institute of Business Administration Airport Road Sukkur-65200, Sindh Pakistan

Sukkur IBA Journal of Management and Business, 2015, vol. 2, issue 1, 47-70

Abstract: Distortion in balance of payments is one of the dominant causes for the sluggish economic condition of Pakistan. The present article has focused to scrutinize the relationship of the balance of payments to its certain determinants that are actually blamable or not for its distortion. The robust ARDL structure has been utilized to develop the bound testing approach to co-integration and error correction models on data set for 1972-2013.The bound test declares that there exists stable long run relationship of balance of payments to its determinants. The upshots indicate that real exchange rate inversely influences the balance of payments not only in the long run but also in the short run. Interest rate inversely affects the balance of payment in the long run but positively affects in the short run .Fiscal balance affects the BOP negatively in the long and short run simultaneously. As regards the real GDP, it moves the BOP in the positive direction in both long and short run. The money supply cast positive influence on the BOP in the short run but negative effect in the long run. So the need of the hour is that the real GDP of Pakistan should be increased by the deliberate policy of the government. Because it is the GDP that can increase our savings consumption and government expenditures and exports and can improve balance of balance of payment.

Keywords: Balance of Payments (BOP); Money Supply; Real Exchange Rate; Real GDP; Interest Rate; Fiscal Balance (search for similar items in EconPapers)
JEL-codes: F45 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

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