The Factors that Affect Trade Deficit of Pakistan

Abstract

Abstract This research study looks at the factors that affect Trade Deficit of Pakistan. For this study, 37 years data collected from World development indicators about Foreign Direct Investment, Exchange rate and Trade Openness on Trade Deficit of Pakistan. When the data were collected, the data was entered into E-view 9 for analysis. Several tests were applied on the data, and the data were present significant findings. In this research Augmented Dickey Fuller unit root test are applied to check the significant of the data. I found that there is significant impact of Foreign Direct Investment, Trade Openness and Exchange Rate on Trade Deficit of Pakistan. This research ARDL Model and long run coefficients are applied. These tests show the relationship of the dependent and independent variable. I found trade openness have a great effect on the trade deficit as compare to other variables. Trade openness is long run relationship with the trade deficit. I also found that there is significant and strong relationship of Trade Openness on Trade Deficit of Pakistan. Trade Openness and Trade Deficit are positive association. Exchange Rate and Foreign Direct Investment are negative relationship with Trade Deficit. The results and data are discussed in depth within this report. There are also several limitations in this research as well as future research implications at the end of this research study.