Dynamics of Current Account Deficit: A Lesson from Pakistan

Jawaid, Syed Tehseen; Raza, Syed Ali

doi:10.1007/s11300-012-0251-5

Cited by 12 publications

(17 citation statements)

References 16 publications

(8 reference statements)

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“…Studies have been conducted to forecast the results of steady and unsteady exchange rates. Stability in exchange rates resulted in improved foreign investments, boost of exports and favourable change in balance of trade of the country (Berka & Devereux, 2010; Drine & Rault, 2006; Edwards, 1988; Khattak et al, 2012; Jawaid & Raza, 2013a). Unsteadiness in the trend of exchange rates enlarges the country’s trade deficit, increases inflation and cuts down the investment level (Eichengreen, 2008; Xiaopu, 2002).…”

Section: Introductionmentioning

confidence: 99%

“…Conversely, if the contribution of export is greater in a country’s trade openness, this will be reflected in the appreciation of the local currency. Likewise, the terms of trade can also contribute in the appreciation and depreciation of the home currency and also have an impact on the economic performance of a country (De Gregorio & Wolf, 1994; Diaz, 1982; Frenkel & Razin, 1992; Jawaid & Raza 2013b, 2015; Kumar, 2010; Roldos, 1990). Algieri (2011) suggested that for small open economy, enhancement in export prices augments terms of trade and boosts export revenues.…”

Section: Introductionmentioning

confidence: 99%

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Determinants of Exchange Rate in Pakistan: Revisited with Structural Break Testing

Raza

Afshan

2017

Global Business Review

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This study examines the determinants of exchange rate in Pakistan by using the time-series data from 1972 to 2013. The results of the autoregressive distributed lag bound testing co-integration approach, the Johansen and Juselius co-integration approach and the Gregory and Hansen structural break co-integration approach confirm the significant long-run relationship between a few considered variables. The estimations of the long run indicate a significant negative association of exchange rates with terms of trade, trade openness and economic growth. However, money supply and inflation rate have a positive and significant effect on exchange rates. The outcomes of the error correction model suggest the negative and significant relationship of the terms of trade and trade openness on exchange rates of Pakistan in the short run. However, all other variables are found insignificant in the short run. The Granger causality test confirms the presence of a bidirectional causal relationship of the exchange rate with economics growth and trade openness in Pakistan. However, the inflation, money supply and terms of trade possess the unidirectional causality which runs from the explanatory variable to the exchange rate of the country. The present study may guide policymakers in formulating conclusive monetary and fiscal policies to ascertain the less volatile and productive exchange rate for Pakistan to attain sustainable economic growth for a long span of time.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Determinants of Exchange Rate in Pakistan: Revisited with Structural Break Testing

Raza

Afshan

2017

Global Business Review

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“…Murat et al (2014) found that the current account has weak sustainability in Turkey. Jawaid and Raza (2012) examine the determinants of the current account deficit in Pakistan by using annual time-series data for the period 1976–2010. The cointegration results suggest a positive and significant long-run relationship between the current account deficit and the variables considered, while a significant negative relationship is found with external debt and private saving.…”

Section: Literature Reviewmentioning

confidence: 99%

“…There is a plethora of country-specific and group-of-countries studies on the dynamics of the current account. For the latter category, see among others Murat, Hobikoglu and Dalyanci (2014) and Jawaid and Raza (2012) for Turkey; Matsubayashi (2005) for the United States; and Karunaratne (2010) for Australia, while in the case of the former, Huntington (2015), Edwards (2006), Milesi-Ferretti and Razin (1998), Kim, Min, Hwang and McDonald (2009) and Gnimassoun and Coulibaly (2014) are worthy of note. Observably, assessment of current account sustainability within the context of oil price variations has received little attention.…”

Section: Introductionmentioning

confidence: 99%

An Empirical Analysis of Nigeria’s Current Account Sustainability

Shuaibu

Oyinlola

2017

Margin: The Journal of Applied Economic Research

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This study reexamines the sustainability of the current account in Nigeria over four decades using time-series analysis on annual data from 1981 to 2013. We focus on two analytical distinctions to the inter-temporal budget constraint (IBC) hypothesis in relation to previous studies. First, we extend the standard bivariate approach to a multivariate framework that accounts for the roles of oil price variations and financial deepening, which have important implications for resource allocation. Second is the use of the Toda–Yamamoto modified Wald (MWALD)-based causality test that is also carried out to arbitrage between the results with and without a structural break. It employs both the conventional unit root test (augmented Dickey–Fuller [ADF] and Phillips–Perron [PP]) and the unit root test with a structural break (Perron, 2006; Zivot & Andrews, 1992). It also carries out the conventional residual-based cointegration test (Engle & Granger, 1987) and the residual-based cointegration test with a structural break (Gregory & Hansen, 1995). Findings suggest that there is current account sustainability in Nigeria and structural changes were not very potent during the period under consideration. This implies that the Nigerian economy complied with the IBC hypothesis, suggesting that exports could actually finance imports. JEL Classification: F30, F32

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“…The worsening position of the saving-investment ratio and foreign indebtedness are also considered as reasons of current account deficit. This study is an attempt to reinvestigate this issue for many reasons; first, scarcity of literature as we find only a few studies (Gulzar et al, 2007;Jawaid & Raza, 2013;Mukhtar & Khan, 2016) that have focused on this topic, second, absentees of consensus in their results as they have portrayed a mixture of results on this topic, and third, conducting research for the extended and latest time period. Figure 1 and Figure 2 are the graphical presentation of the current account deficit growth in the GDP of Pakistan.…”

Section: Introductionmentioning

confidence: 99%

Empirical Analysis of the Factors affecting Current Account Deficit in Pakistan

Minhajuddin

Bakhsheesh

Khan

2020

GER

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The maintenance of a balanced current account is among the enormous challenges faced by most of the developing economies. This study seeks to examine the determinative factors of the current account deficit in Pakistan over the period of 1976-2020.Assessment of these factors has been made within the stipulated structure of the ARDL model.Findings reveal that fiscal sustainability, sustainable economic growth, controlled inflation,and growth in gross saving are the reasons that help in stimulating the current account balances in the long run. This study also finds that exchange rate, money supply, and TOT were unable to change the position of the current account. Based on the empirical findings, it is recommended that government should concentrate on recognitions of channels that help in boosting the government revenue, accelerating the growth process, stimulating the gross saving, and maintaining a moderate level of inflation.

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Dynamics of Current Account Deficit: A Lesson from Pakistan

Cited by 12 publications

References 16 publications

Determinants of Exchange Rate in Pakistan: Revisited with Structural Break Testing

Determinants of Exchange Rate in Pakistan: Revisited with Structural Break Testing

An Empirical Analysis of Nigeria’s Current Account Sustainability

Empirical Analysis of the Factors affecting Current Account Deficit in Pakistan

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