Abstract:
Purpose. This study has performed with an objective to determine the impact of
economic factors on trade deficit of Pakistan focusing on foreign direct investment,
remittances, reserves and exchange rate to understand their role in determination of trade
balance in the country.
Methodology/sample: The research method of present study is based on explanatory
approach to understand its role in determination of influence of selected independent
variables on dependent variable. Furthermore, this study has followed with secondary
data employing quantitative approach. This study focused on time series approach
employing data range from 1996 till 2015. In addition, published sources i.e. handbook of
statistics and economic survey of Pakistan and global economy, have used during this
study to gather data on selected variables. In this research study time series regression
technique has used because data that has collected for selected range of variables real
effective exchange rate, foreign direct investment, foreign exchange reserves, remittances
and trade deficit for Pakistan for multiple years hence support the selection of specific
statistical technique.
Findings: The results of the study reveal that there is significant impact of foreign direct
investment, remittances and reserves on trade balance of Pakistan. In this context the
influence of foreign direct investment is relatively more significant in comparison to other
factors.
Practical Implications: This study revealed that it is required to improve reserve position
and environment for foreign direct investment to make better trade balance of Pakistan
