Impact of Exchange Rate on Balance of Trade : An Investigation from Pakistan

Abstract

This study examines how the FDI, exchange rate and inflation impact the balance of trade. The principal dimensions of balance of trade that impacts the economy most are examined. The attention of this study is to predict the possibility, at an acceptable level of confidence that controlled FDI, lower exchange rate and less inflation have positive association with the balance of trade. Using time series data from 1982-2012 taken from the economic survey of Pakistan, the results were analyzed using the regression analysis technique through E-Views software. It is found that, as hypothesized, controlled FDI, lower exchange rate and less inflation impacts positively with balance of trade. Hence, the hypotheses of this study which supports the literature and show positive relations among the dependent and independent variable are sustained. Afterwards, the implications of this inquiry for the academia, practitioners, and the policy makers are discussed in the field of economics. The study offers a detailed insight to help academicians, policy makers and practitioners to improve balance of trade issues within the economy for favorable results. Finally, the possible avenues for future research in the existing field of inquiry are discussed briefly.