Time Series Investigation of J-Curve of Pakistan with Saudi Arabia

Abstract

This study is focused in analyzing the existence of J-curve phenomenon of Pakistan with Saudi Arabia by using the time series data from 1973 to 2010. Order of integration of the variables is mix as some variables are I(0) and some are I(1). So, ARDL approach to cointegration is applied to find out the relationship between exchange rate and trade balance. Results in both models do not support the existence of J-curve. The conclusion which is drawn from these models is that depreciation is not useful tool in improving trade balance of Pakistan with Saudi Arabia. Pakistan has to fine some alternative way of improving trade balance with these countries.