Modelling the determinants and Sustainability of Current Account of Pakistan

Rafiq Ahmed, Syed Tehseen Jawaid, Tabasam Aftab Hussain, Iqbal Muhammad Shahid, Gamli-Dovene Francis Komla and Iqbal Muhammad Javed
Additional contact information
Tabasam Aftab Hussain: University of Poonch Rawalakot Azad Kashmir Pakistan
Iqbal Muhammad Shahid: Department of Economics and Management Sciences, N.E.D. University of Engineering & Technology, Karachi 74900, Pakistan
Gamli-Dovene Francis Komla: IIC International Program & FTMAS CONSULT, Ghana and IIC University of Technology, Kindom of Cambodia
Iqbal Muhammad Javed: Riphah International University Islamabad, MS Finance NUML, Islamabad, Pakistan

Zagreb International Review of Economics and Business, 2023, vol. 26, issue 2, 97-112

Abstract: The study investigated the determinants of the current account deficit from 1976 to 2020 for the economy of Pakistan, and its sustainability. The persistent deficit is necessary to be sustainable if it will be paid off shortly otherwise it will pile up external debt. The conventional methodology concluded that current account deficit (CAD) of Pakistan is unsustainable, albeit one measure suggests sustainability. There is cointegration among variables and domestic saving, external debt, fiscal deficit and trade deficit has positive whereas exchange rate and worker’s remittances have a negative relation with the current account, all the results are significant. The negative sign of the error correction term confirms restoration of equilibrium and it is also significant. Bidirectional causality is reported between the worker’s remittances, exchange rate and external debt with CAD. Unidirectional causality is seen from CAD to trade deficit and fiscal deficit. The diagnostic tests of the model confirm robustness. The government should favour an investment-friendly environment to increase economic activity in the country besides improving domestic savings and reducing the external deficit.

Keywords: Current Account; Fiscal Deficit; Sustainability; Time-Series; Pakistan (search for similar items in EconPapers)
JEL-codes: E21 E62 F13 F31 F32 F35 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.2478/zireb-2023-0016 (text/html)

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:vrs:zirebs:v:26:y:2023:i:2:p:97-112:n:1005

DOI: 10.2478/zireb-2023-0016

Access Statistics for this article

Zagreb International Review of Economics and Business is currently edited by Jurica Šimurina

More articles in Zagreb International Review of Economics and Business from Sciendo
Bibliographic data for series maintained by Peter Golla ().