Macroeconomics factor, institutional quality and export performance: Empirical evidence from Pakistan

Abstract

A country's institutional quality (INS) influences its export performance (EXP) and plays a vital role in international trade. The purpose of this study is to investigate the short‐run and long‐run relationships among these macroeconomic factors in Pakistan. Annual data from the World Development Indicators and the International Country Risk Guide were used from ‘1989 to 2019’. To investigate the short‐run and long‐run linkage between INS and EXP, the non‐linear auto‐regressive distributed lag and error correction model are used after incorporating structural breaks. Additionally, the macroeconomic explanatory variables used are the exchange rate (ER), human capital (HC), gross domestic product (GDP) and foreign direct investment (FDI). In the long run, INS, HC, GDP and FDI have a significant positive relationship with EXP, whereas the ER has a significant negative relationship. In the short run, INS is significant and positive, whereas HC, GDP and FDI with EXP are modest but significantly positive. To improve export performance in Pakistan, strategic reform of governmental institutions is required.