The Impact of Macroeconomic Indicators on the Balance of Payments: Empirical Evidence from Afghanistan

Abdul Hadi Sultani and U. Faisal ()
Additional contact information
Abdul Hadi Sultani: Department of Economics, Kabul University, Kabul, Afghanistan2Department of Management Studies, Kannur University, Kannur 670661, India
U. Faisal: Department of Management Studies, Kannur University, Kannur 670661, India

Annals of Financial Economics (AFE), 2023, vol. 18, issue 02, 1-29

Abstract: This study aims to empirically investigate the impact of a set of macroeconomic variables including balance of trade, FDI, exchange rate, and inflation on the balance of payments (BOP) of Afghanistan using quarterly data from the second quarter of 2004 to the fourth quarter of 2020 (2004Q2 to 2020Q4). The paper uses the Vector Error Correction Model (VECM), and Johansen co-integration test for analysis to explore the BOP of Afghanistan and provides comparable literature to other least-developed and low-income developing countries. The findings reveal that balance of trade (BOT), foreign direct investment (FDI), and exchange rate are significant determinants of Afghanistan’s BOP in the long run. More specifically, BOT and FDI positively impact the BOP, whereas the effect of the exchange rate on the BOP is found negative. Yet, inflation has an insignificant impact on the BOP. Though all variables have an insignificant impact on the BOP in the short run, the relevant policy measures ought to consider improvement in BOT, promoting FDI, and exchange rate stability to ensure synchronized improved BOP and economic growth.

Keywords: Balance of payments; external balance; exchange rate; FDI; trade balance; VECM; Afghanistan (search for similar items in EconPapers)
JEL-codes: E52 E60 F14 O53 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S2010495222500324
Access to full text is restricted to subscribers

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:wsi:afexxx:v:18:y:2023:i:02:n:s2010495222500324

Ordering information: This journal article can be ordered from

DOI: 10.1142/S2010495222500324

Access Statistics for this article

Annals of Financial Economics (AFE) is currently edited by Michael McAleer

More articles in Annals of Financial Economics (AFE) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().