The study explores the causal relationship among export instability, income terms of trade instab... more The study explores the causal relationship among export instability, income terms of trade instability and economic growth in India. By using the cointegration test and the vector error correction model for the period 1960 to 2008, the study demonstrates that there exists a long run equilibrium relationship among export instability, income terms of trade instability, investment and economic growth. Both in the short run and the long rum the Granger causal flow is uni-directional from export instability and income terms of trade instability to economic growth and investment. The findings of the study suggest that there is a need to build up foreign exchange reserves in India in order to smoothen out fluctuations in export earnings in the short run. A long run strategy may involve government efforts to diversify export base of the country.
Estimates of factors influencing Cameroon's exports of cocoa, coffee and cotton are derived in a ... more Estimates of factors influencing Cameroon's exports of cocoa, coffee and cotton are derived in a system of equations using the Engle-Granger and Johansen co-integration and error-correction representation procedures. Two co-integrating vectors involving cocoa and coffee exports as endogenous variables are identified in the system while tests for exogeneity of cotton exports are consistent with the independence of cotton from the other two commodities. These findings are corroborated by estimates of a restricted error-correction model which lead to acceptance of the hypothesis that cocoa and coffee exports are indeed determined endogenously to the system and not linked to cotton exports. Statistical significance of the error-correction terms for cocoa and coffee validates the existence of an equilibrium relationship among the variables in each of these cointegrating vectors. The combined short-run dynamic effect of lagged quantities of cocoa and coffee, export/domestic price ratio and GDP jointly explain changes in exports of cocoa whereas lagged quantities exported do not seem to have a significant short-run dynamic effect on changes in coffee exports.
The study was conducted to estimate the major determinants of farm income and technical efficienc... more The study was conducted to estimate the major determinants of farm income and technical efficiency in the districts of Bahawalpur and Rahim Yar Khan, Punjab, Pakistan during 2011-12. Data were collected from 201 farm managers using random sampling technique. For the estimation purpose, Stochastic Frontier Cobb Douglas production function was employed. The estimated result of technical efficiency was approximately 65 percent. It showed that on average farm managers are 65 percent efficient in managing farm income and there is still a room for increasing 35 percent farm income by fetching improvement in efficiency. The key farm specific factor that had negative impact on the farm income and efficiency was low prices of farm output relative to the prices of inputs. On the other side of the picture, farm markets’ mechanism is quite poor and farmers are not getting due prices of farm output. There is mounting need of bringing development in the rural infrastructure by generating educatio...
With the gradual reduction in trade barriers led by the process of globalisation, more emphasis i... more With the gradual reduction in trade barriers led by the process of globalisation, more emphasis is now being placed on promoting export competitiveness. Asia is the home of many of the world’s top rice exporters. The food-price crisis has divided Asia into “rice haves” and “rice have-nots”. In order to describe the processes involved in securing and maintaining international competitiveness in rice exports, the present study has used the Balassa and White indices of revealed comparative advantage and revealed competitive advantage respectively. Results have revealed that Pakistan is the most competitive country in rice trade and ranks first in both agricultural product trade and total merchandise exports. JEL classification: C12, C43, Q17 Keywords: Asian Countries, Competitiveness, Revealed Comparative Advantage, Revealed Competitive Advantage.
Pakistan constitutes a valuable case study for investigating the dynamics of persistently high ra... more Pakistan constitutes a valuable case study for investigating the dynamics of persistently high rates of budget and current account deficits. In this paper an attempt has been made to empirically test the twin deficits hypothesis in Pakistan using quarterly time-series data for ...
Until the mid 1980, Pakistan pursued an economic policy that was strongly interventionist. One of... more Until the mid 1980, Pakistan pursued an economic policy that was strongly interventionist. One of the consequences has been price discrimination against agriculture in the sense that the government taxed the producers and subsidized consumers. During the late 1980s, Pakistan turned from inward-looking policies towards trade liberalization and export promotion strategies. From the late 1980s onwards, the governments changed frequently but all of them considerably liberalized the economy (Akhtar, 1999). Crops are the most important sub-sector of Agriculture sector of Pakistan. Among the major food crops wheat is the main staple diet of the country"s population. It contributes 74 percent of the overall production of food grains. Wheat area constitutes 36 percent of the total cropped area and its production accounts for 30 percent of the value added by major crops (APCOM, 2004). Pakistan is one of the major producers of wheat in the world. Yet the domestic wheat production remains insufficient for the needs of population, which is at present growing at about 1.9 percent per annum. Hence to ensure food security, the country has to supplement the local production with imports. It is estimated that imports cover from 10-20 percent of national consumption needs (Ashiq & Ahmed, 2001). By virtue of its high import dependence for essential items like wheat and edible oil that absorb 13 percent of total foreign exchange earnings, Pakistan is characterized as net food importing developing country (FAO, 1999). Because of the strategic importance of wheat as a major staple food commodity, government used to intervene not only to guarantee affordable supplies to consumers, but also to provide market support to
The study explores the causal relationship among export instability, income terms of trade instab... more The study explores the causal relationship among export instability, income terms of trade instability and economic growth in India. By using the cointegration test and the vector error correction model for the period 1960 to 2008, the study demonstrates that there exists a long run equilibrium relationship among export instability, income terms of trade instability, investment and economic growth. Both in the short run and the long rum the Granger causal flow is uni-directional from export instability and income terms of trade instability to economic growth and investment. The findings of the study suggest that there is a need to build up foreign exchange reserves in India in order to smoothen out fluctuations in export earnings in the short run. A long run strategy may involve government efforts to diversify export base of the country. Key words: export instability, economic growth, income terms of trade, Granger causality.
... Tahir Mukhtar, Assistant Professor of Economics, Fatima Jinnah Women University, Rawalpindi, ... more ... Tahir Mukhtar, Assistant Professor of Economics, Fatima Jinnah Women University, Rawalpindi, Pakistan, e-mail: [email protected]. ... However, in contrast to these studies, Shabbir andAhmed (1994) find a positive relationship between budget deficits and inflation in ...
This study tests empirical consistency of the NKPC for its standard and hybrid versions over the ... more This study tests empirical consistency of the NKPC for its standard and hybrid versions over the period 1972 to 2012. Empirical findings of the standard NKPC show that both expected inflation and output gap play important role in explaining inflation behavior in Pakistan. As the standard NKPC does not generate inflation persistence, so, we tested the hybrid version of NKPC. The estimates of the hybrid NKPC reveal that although both the lagged period inflation and expected future inflation are statistically significant but the coefficient of lagged inflation is quantitatively larger than that of the expected inflation which means that the price setting behavior is dominantly backward looking in Pakistan. Furthermore, the output gap is found to be significantly and positively affecting inflation in the country. The findings of this study suggest that the NKPC can be used as a benchmark model for understanding the inflation behaviour in Pakistan.
Journal of Economic Cooperation and Development, 2012
The study explores the causal relationship among export instability, income terms of trade instab... more The study explores the causal relationship among export instability, income terms of trade instability and economic growth in Pakistan. By using the cointegration analysis and vector error correction model for the period 1960 to 2008, the study demonstrates that there exists a long run equilibrium relationship among export instability, income terms of trade instability, investment and economic growth. The Granger causality test results indicate that in the short run there exists a unidirectional causality running from export instability and income terms of trade instability to economic growth. However, in the long run all the variables of the study cause one another. This finding is suggestive of closer coordination among the monetary, fiscal and trade policies in Pakistan.
Journal of Economic Cooperation and Development, 2012
Monetary policy has remained one of the most fundamental topics in macroeconomics. Since the begi... more Monetary policy has remained one of the most fundamental topics in macroeconomics. Since the beginning of macroeconomic history it has been argued that money has a strong role in affecting the real economic activity but the evidence remains inconclusive. Considerable empirical evidence has been produced on the stance of monetary policy using different approaches and still the process continues. The present study investigates the dynamic interactions among macroeconomic variables such as money supply, prices, interest rate, exchange rate and output level, using the quarterly data for Pakistan over the period 1972Q1 to 2009Q4. For the empirical analysis the Johansen multivariate cointegration technique, Granger causality test and variance decompositions are employed. The results from the cointegration test indicate that there exits a stable long run equilibrium relationship among the macroeconomic variables of the study. The outcome of causality tests tends to support the non neutrali...
Exports and imports together play an integral role in determining the trade balance of a country.... more Exports and imports together play an integral role in determining the trade balance of a country. In this respect the dynamics of relationship between these variables hold significant importance and attract the researchers for testing the nature of relationship between exports and imports. This study empirically examines the long run relationship between exports and imports for Pakistan using quarterly data for the period 1972-2006. The econometric framework used for analysis is the Johansen Maximum Likelihood cointegration technique, which tests both the existence and the number of cointegration vectors. Results show that there is a long run relationship between exports and imports and the country is not in violation of its international budget constraint. Furthermore, for testing the stability of long run equilibrium relationship and direction of causality, vector error correction model (VECM) technique has been applied. The findings confirm the stability of the long run equilibri...
This study empirically estimates the fiscal consequences of terrorism in Pakistan by using annual... more This study empirically estimates the fiscal consequences of terrorism in Pakistan by using annual time series data from 1984 to 2016. By employing the autoregressive distributed lag (ARDL) technique, the study has gauged the impact of terrorist incidents on two important facets of fiscal policy, namely, tax revenue and defense spending. The results reveal that terrorism has detrimental ramifications for fiscal policy in Pakistan. Specifically, on the one hand, an increase in terrorist incidents tends to bring a fall in tax revenue while on the other hand, they induce a rise in defense outlays, thus deteriorating both fronts of the fiscal position. Notably, the moderating role of institutional quality appears significant and indicates that institutional quality has not only a significant direct impact on fiscal policy, but it also helps in completely mitigating (reducing) the harmful impact of terrorism on defense spending (tax revenue) in Pakistan. These findings suggest that there ...
This study evaluates the impacts of the trade liberalization under Doha Round on basmati rice in ... more This study evaluates the impacts of the trade liberalization under Doha Round on basmati rice in Pakistan using a partial equilibrium model. Price integration analysis shows that there is a stable long-run relationship between farm gate price and wholesale price and between wholesale price and world price of basmati and non-basmati rice. Direction of influence is from world price to wholesale price and from wholesale price to farm gate price. The welfare analysis indicates a net welfare gain for the nation as a whole under the Doha Round agricultural trade liberalization.
Price stability is considered an essential component of macroeconomic management of an economy be... more Price stability is considered an essential component of macroeconomic management of an economy because the higher inflation rate is harmful for various sectors of the country. The main objective of this paper is to investigate the dynamics of inflation in presence of capital account liberalization and the institutional quality variables for Pakistan. The study covers the time period of 1984 to 2015 and employs the ARDL estimation technique to estimate three different specifications based on trade liberalization and the institutional quality measures. The longrun and short-run estimates of different specifications reveal that the model which incorporates the institutional quality measures along with the capital account liberalization index can best explain the inflationary process in. Moreover, growth rate of money supply and the real effective exchange rate are proved significant contributors of inflation; whereas, capital account liberalization, trade openness, per capita GDP and t...
The rising public debt burden is a common feature of developing countries like Pakistan. This stu... more The rising public debt burden is a common feature of developing countries like Pakistan. This study is an attempt to empirically analyse the external debt and capital accumulation nexus for Pakistan from 1972 to 2016. The ARDL bound testing technique was employed to estimate two models which incorporate different indicators of external debt. Results indicate the existence of a negative relationship between external debt to revenue ratio and stock of capital that supports the debt overhang hypothesis for Pakistan. The debt overhang hypothesis states that large accumulated debt leads to a decrease in overall capital accumulation in an economy. Similarly, other indicators of external debt, namely, external debt service to revenue ratio, external debt to export ratio, and external debt service to export ratio tend to bring a fall in stock of capital in Pakistan. Based on its findings, the study suggests the need for better and productive use of external debt in public sector development...
The intertemporal approach has become a basic reference in open economy macroeconomics for the th... more The intertemporal approach has become a basic reference in open economy macroeconomics for the theoretical understanding of the current account. Since the early 1980s there has been substantial growth in the literature using this approach to analyse the behaviour of the current account movements for different countries and time periods. The theoretical refinements in the approach have led most of the empirical studies in the literature today to apply the basic present value model of current account (PVMCA) and its extended version to examine the fluctuations in the current account balances of both developed and developing countries. Using data on Pakistan over the period 1960 to 2009, the present study finds that the basic model fails to predict the dynamics of the actual current account. However, extending the basic model to capture variations in the world real interest rate and the real exchange rate significantly improves the fit of the intertemporal model. The extended model pre...
Journal of Economic Cooperation Development, Mar 1, 2012
ABSTRACT The study explores the causal relationship among export instability, income terms of tra... more ABSTRACT The study explores the causal relationship among export instability, income terms of trade instability and economic growth in Pakistan. By using the cointegration analysis and vector error correction model for the period 1960 to 2008, the study demonstrates that there exists a long run equilibrium relationship among export instability, income terms of trade instability, investment and economic growth. The Granger causality test results indicate that in the short run there exists a uni-directional causality running from export instability and income terms of trade instability to economic growth. However, in the long run all the variables of the study cause one another. This finding is suggestive of closer coordination among the monetary, fiscal and trade policies in Pakistan.
The study explores the causal relationship among export instability, income terms of trade instab... more The study explores the causal relationship among export instability, income terms of trade instability and economic growth in India. By using the cointegration test and the vector error correction model for the period 1960 to 2008, the study demonstrates that there exists a long run equilibrium relationship among export instability, income terms of trade instability, investment and economic growth. Both in the short run and the long rum the Granger causal flow is uni-directional from export instability and income terms of trade instability to economic growth and investment. The findings of the study suggest that there is a need to build up foreign exchange reserves in India in order to smoothen out fluctuations in export earnings in the short run. A long run strategy may involve government efforts to diversify export base of the country.
Estimates of factors influencing Cameroon's exports of cocoa, coffee and cotton are derived in a ... more Estimates of factors influencing Cameroon's exports of cocoa, coffee and cotton are derived in a system of equations using the Engle-Granger and Johansen co-integration and error-correction representation procedures. Two co-integrating vectors involving cocoa and coffee exports as endogenous variables are identified in the system while tests for exogeneity of cotton exports are consistent with the independence of cotton from the other two commodities. These findings are corroborated by estimates of a restricted error-correction model which lead to acceptance of the hypothesis that cocoa and coffee exports are indeed determined endogenously to the system and not linked to cotton exports. Statistical significance of the error-correction terms for cocoa and coffee validates the existence of an equilibrium relationship among the variables in each of these cointegrating vectors. The combined short-run dynamic effect of lagged quantities of cocoa and coffee, export/domestic price ratio and GDP jointly explain changes in exports of cocoa whereas lagged quantities exported do not seem to have a significant short-run dynamic effect on changes in coffee exports.
The study was conducted to estimate the major determinants of farm income and technical efficienc... more The study was conducted to estimate the major determinants of farm income and technical efficiency in the districts of Bahawalpur and Rahim Yar Khan, Punjab, Pakistan during 2011-12. Data were collected from 201 farm managers using random sampling technique. For the estimation purpose, Stochastic Frontier Cobb Douglas production function was employed. The estimated result of technical efficiency was approximately 65 percent. It showed that on average farm managers are 65 percent efficient in managing farm income and there is still a room for increasing 35 percent farm income by fetching improvement in efficiency. The key farm specific factor that had negative impact on the farm income and efficiency was low prices of farm output relative to the prices of inputs. On the other side of the picture, farm markets’ mechanism is quite poor and farmers are not getting due prices of farm output. There is mounting need of bringing development in the rural infrastructure by generating educatio...
With the gradual reduction in trade barriers led by the process of globalisation, more emphasis i... more With the gradual reduction in trade barriers led by the process of globalisation, more emphasis is now being placed on promoting export competitiveness. Asia is the home of many of the world’s top rice exporters. The food-price crisis has divided Asia into “rice haves” and “rice have-nots”. In order to describe the processes involved in securing and maintaining international competitiveness in rice exports, the present study has used the Balassa and White indices of revealed comparative advantage and revealed competitive advantage respectively. Results have revealed that Pakistan is the most competitive country in rice trade and ranks first in both agricultural product trade and total merchandise exports. JEL classification: C12, C43, Q17 Keywords: Asian Countries, Competitiveness, Revealed Comparative Advantage, Revealed Competitive Advantage.
Pakistan constitutes a valuable case study for investigating the dynamics of persistently high ra... more Pakistan constitutes a valuable case study for investigating the dynamics of persistently high rates of budget and current account deficits. In this paper an attempt has been made to empirically test the twin deficits hypothesis in Pakistan using quarterly time-series data for ...
Until the mid 1980, Pakistan pursued an economic policy that was strongly interventionist. One of... more Until the mid 1980, Pakistan pursued an economic policy that was strongly interventionist. One of the consequences has been price discrimination against agriculture in the sense that the government taxed the producers and subsidized consumers. During the late 1980s, Pakistan turned from inward-looking policies towards trade liberalization and export promotion strategies. From the late 1980s onwards, the governments changed frequently but all of them considerably liberalized the economy (Akhtar, 1999). Crops are the most important sub-sector of Agriculture sector of Pakistan. Among the major food crops wheat is the main staple diet of the country"s population. It contributes 74 percent of the overall production of food grains. Wheat area constitutes 36 percent of the total cropped area and its production accounts for 30 percent of the value added by major crops (APCOM, 2004). Pakistan is one of the major producers of wheat in the world. Yet the domestic wheat production remains insufficient for the needs of population, which is at present growing at about 1.9 percent per annum. Hence to ensure food security, the country has to supplement the local production with imports. It is estimated that imports cover from 10-20 percent of national consumption needs (Ashiq & Ahmed, 2001). By virtue of its high import dependence for essential items like wheat and edible oil that absorb 13 percent of total foreign exchange earnings, Pakistan is characterized as net food importing developing country (FAO, 1999). Because of the strategic importance of wheat as a major staple food commodity, government used to intervene not only to guarantee affordable supplies to consumers, but also to provide market support to
The study explores the causal relationship among export instability, income terms of trade instab... more The study explores the causal relationship among export instability, income terms of trade instability and economic growth in India. By using the cointegration test and the vector error correction model for the period 1960 to 2008, the study demonstrates that there exists a long run equilibrium relationship among export instability, income terms of trade instability, investment and economic growth. Both in the short run and the long rum the Granger causal flow is uni-directional from export instability and income terms of trade instability to economic growth and investment. The findings of the study suggest that there is a need to build up foreign exchange reserves in India in order to smoothen out fluctuations in export earnings in the short run. A long run strategy may involve government efforts to diversify export base of the country. Key words: export instability, economic growth, income terms of trade, Granger causality.
... Tahir Mukhtar, Assistant Professor of Economics, Fatima Jinnah Women University, Rawalpindi, ... more ... Tahir Mukhtar, Assistant Professor of Economics, Fatima Jinnah Women University, Rawalpindi, Pakistan, e-mail: [email protected]. ... However, in contrast to these studies, Shabbir andAhmed (1994) find a positive relationship between budget deficits and inflation in ...
This study tests empirical consistency of the NKPC for its standard and hybrid versions over the ... more This study tests empirical consistency of the NKPC for its standard and hybrid versions over the period 1972 to 2012. Empirical findings of the standard NKPC show that both expected inflation and output gap play important role in explaining inflation behavior in Pakistan. As the standard NKPC does not generate inflation persistence, so, we tested the hybrid version of NKPC. The estimates of the hybrid NKPC reveal that although both the lagged period inflation and expected future inflation are statistically significant but the coefficient of lagged inflation is quantitatively larger than that of the expected inflation which means that the price setting behavior is dominantly backward looking in Pakistan. Furthermore, the output gap is found to be significantly and positively affecting inflation in the country. The findings of this study suggest that the NKPC can be used as a benchmark model for understanding the inflation behaviour in Pakistan.
Journal of Economic Cooperation and Development, 2012
The study explores the causal relationship among export instability, income terms of trade instab... more The study explores the causal relationship among export instability, income terms of trade instability and economic growth in Pakistan. By using the cointegration analysis and vector error correction model for the period 1960 to 2008, the study demonstrates that there exists a long run equilibrium relationship among export instability, income terms of trade instability, investment and economic growth. The Granger causality test results indicate that in the short run there exists a unidirectional causality running from export instability and income terms of trade instability to economic growth. However, in the long run all the variables of the study cause one another. This finding is suggestive of closer coordination among the monetary, fiscal and trade policies in Pakistan.
Journal of Economic Cooperation and Development, 2012
Monetary policy has remained one of the most fundamental topics in macroeconomics. Since the begi... more Monetary policy has remained one of the most fundamental topics in macroeconomics. Since the beginning of macroeconomic history it has been argued that money has a strong role in affecting the real economic activity but the evidence remains inconclusive. Considerable empirical evidence has been produced on the stance of monetary policy using different approaches and still the process continues. The present study investigates the dynamic interactions among macroeconomic variables such as money supply, prices, interest rate, exchange rate and output level, using the quarterly data for Pakistan over the period 1972Q1 to 2009Q4. For the empirical analysis the Johansen multivariate cointegration technique, Granger causality test and variance decompositions are employed. The results from the cointegration test indicate that there exits a stable long run equilibrium relationship among the macroeconomic variables of the study. The outcome of causality tests tends to support the non neutrali...
Exports and imports together play an integral role in determining the trade balance of a country.... more Exports and imports together play an integral role in determining the trade balance of a country. In this respect the dynamics of relationship between these variables hold significant importance and attract the researchers for testing the nature of relationship between exports and imports. This study empirically examines the long run relationship between exports and imports for Pakistan using quarterly data for the period 1972-2006. The econometric framework used for analysis is the Johansen Maximum Likelihood cointegration technique, which tests both the existence and the number of cointegration vectors. Results show that there is a long run relationship between exports and imports and the country is not in violation of its international budget constraint. Furthermore, for testing the stability of long run equilibrium relationship and direction of causality, vector error correction model (VECM) technique has been applied. The findings confirm the stability of the long run equilibri...
This study empirically estimates the fiscal consequences of terrorism in Pakistan by using annual... more This study empirically estimates the fiscal consequences of terrorism in Pakistan by using annual time series data from 1984 to 2016. By employing the autoregressive distributed lag (ARDL) technique, the study has gauged the impact of terrorist incidents on two important facets of fiscal policy, namely, tax revenue and defense spending. The results reveal that terrorism has detrimental ramifications for fiscal policy in Pakistan. Specifically, on the one hand, an increase in terrorist incidents tends to bring a fall in tax revenue while on the other hand, they induce a rise in defense outlays, thus deteriorating both fronts of the fiscal position. Notably, the moderating role of institutional quality appears significant and indicates that institutional quality has not only a significant direct impact on fiscal policy, but it also helps in completely mitigating (reducing) the harmful impact of terrorism on defense spending (tax revenue) in Pakistan. These findings suggest that there ...
This study evaluates the impacts of the trade liberalization under Doha Round on basmati rice in ... more This study evaluates the impacts of the trade liberalization under Doha Round on basmati rice in Pakistan using a partial equilibrium model. Price integration analysis shows that there is a stable long-run relationship between farm gate price and wholesale price and between wholesale price and world price of basmati and non-basmati rice. Direction of influence is from world price to wholesale price and from wholesale price to farm gate price. The welfare analysis indicates a net welfare gain for the nation as a whole under the Doha Round agricultural trade liberalization.
Price stability is considered an essential component of macroeconomic management of an economy be... more Price stability is considered an essential component of macroeconomic management of an economy because the higher inflation rate is harmful for various sectors of the country. The main objective of this paper is to investigate the dynamics of inflation in presence of capital account liberalization and the institutional quality variables for Pakistan. The study covers the time period of 1984 to 2015 and employs the ARDL estimation technique to estimate three different specifications based on trade liberalization and the institutional quality measures. The longrun and short-run estimates of different specifications reveal that the model which incorporates the institutional quality measures along with the capital account liberalization index can best explain the inflationary process in. Moreover, growth rate of money supply and the real effective exchange rate are proved significant contributors of inflation; whereas, capital account liberalization, trade openness, per capita GDP and t...
The rising public debt burden is a common feature of developing countries like Pakistan. This stu... more The rising public debt burden is a common feature of developing countries like Pakistan. This study is an attempt to empirically analyse the external debt and capital accumulation nexus for Pakistan from 1972 to 2016. The ARDL bound testing technique was employed to estimate two models which incorporate different indicators of external debt. Results indicate the existence of a negative relationship between external debt to revenue ratio and stock of capital that supports the debt overhang hypothesis for Pakistan. The debt overhang hypothesis states that large accumulated debt leads to a decrease in overall capital accumulation in an economy. Similarly, other indicators of external debt, namely, external debt service to revenue ratio, external debt to export ratio, and external debt service to export ratio tend to bring a fall in stock of capital in Pakistan. Based on its findings, the study suggests the need for better and productive use of external debt in public sector development...
The intertemporal approach has become a basic reference in open economy macroeconomics for the th... more The intertemporal approach has become a basic reference in open economy macroeconomics for the theoretical understanding of the current account. Since the early 1980s there has been substantial growth in the literature using this approach to analyse the behaviour of the current account movements for different countries and time periods. The theoretical refinements in the approach have led most of the empirical studies in the literature today to apply the basic present value model of current account (PVMCA) and its extended version to examine the fluctuations in the current account balances of both developed and developing countries. Using data on Pakistan over the period 1960 to 2009, the present study finds that the basic model fails to predict the dynamics of the actual current account. However, extending the basic model to capture variations in the world real interest rate and the real exchange rate significantly improves the fit of the intertemporal model. The extended model pre...
Journal of Economic Cooperation Development, Mar 1, 2012
ABSTRACT The study explores the causal relationship among export instability, income terms of tra... more ABSTRACT The study explores the causal relationship among export instability, income terms of trade instability and economic growth in Pakistan. By using the cointegration analysis and vector error correction model for the period 1960 to 2008, the study demonstrates that there exists a long run equilibrium relationship among export instability, income terms of trade instability, investment and economic growth. The Granger causality test results indicate that in the short run there exists a uni-directional causality running from export instability and income terms of trade instability to economic growth. However, in the long run all the variables of the study cause one another. This finding is suggestive of closer coordination among the monetary, fiscal and trade policies in Pakistan.
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