What Determines Balance of Payments: A Case of Pakistan

Abstract

Distortion in balance of payments is one of the dominant causes for the sluggish economic condition of Pakistan. The present article has focused to scrutinize the relationship of the balance of payments to its certain determinants that are actually blamable or not for its distortion. The robust ARDL structure has been utilized to develop the bound testing approach to co-integration and error correction models on data set for 1972-2013.The bound test declares that there exists stable long run relationship of balance of payments to its determinants. The upshots indicate that real exchange rate inversely influences the balance of payments not only in the long run but also in the short run. Interest rate inversely affects the balance of payment in the long run but positively affects in the short run .Fiscal balance affects the BOP negatively in the long and short run simultaneously. As regards the real GDP, it moves the BOP in the positive direction in both long and short run. The money supply cast a positive influence on the BOP in the short run but negative effect in the long run. So the need of the hour is that the real GDP of Pakistan should be increased by the deliberate policy of the government. Because it is the GDP that can increase our savings consumption and government expenditures and exports and can improve balance of balance of payment.

The Effect of International Currency Crises on the Balance of Payments: Evidence From Jordan

“…The study also presented recommendations towards the achievement of growth in the market-segment to improve exports and creating employment, in addition to regulating inflation to reduce poverty and reducing imports of non-productive goods. In another study, Batool et al (2015) determined the BoP in Pakistan using data for the period between 1972 and 2013. Here the findings from the study revealed that a steady long-run association prevailed regarding the BoP and its causes.…”

“…The first variable, Money Supply is described as the amount of currency that people and banking departments of SBP hold, deposits with SBP, net foreign assets of SBP, and scheduled bank demand deposits, etc., which are incorporated with respect to the meaning of money supply as mentioned by (Batool et al, 2015). The second variable is the interest rate (R), which is the sum charged represented as a percentage to the primary amount, by a lender (the creditor) to a borrower (the debtor) utilized as assets.…”

“…Balance of payment (BoP) has attracted significant attention globally, specifically in economic and finance domains (Batool, Memood, & Jadoon, 2015;Gouvea & Lima, 2013;Hutchison & Noy, 2002;Kalayci, 2019;Kandil, 2009; R. S. Ribeiro, McCombie, & Lima, 2016;R. S. M. Ribeiro, 2019).…”