ECONOMIC FACTORS EFFECTING TRADE DEFICIT IN PAKISTAN

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