Determinants of current account deficit: Evidence from Pakistan

Abstract

This study investigates the determinants of the current account deficit in Pakistan by using the annual time series data for the period from 1980 to 2017 .Current account deficit is an important part of any country and it depends upon the economy of country that how country is performing as in now and near future. In Pakistan economy especially in recent year’s ratio of current account deficits is considerably high and Variables like current account deficit, National income growth, Real exchange rate, Domestic savings, and GDP growth are selected. Different test like augmented dickey fuller unit root test (ADF), simple descriptive statistics, co-integration model are used in this research. For the analysis of the data we use excel and the E-Views software. And also the data collected from the knoema, World Bank, and State bank of Pakistan website. The major backbone of this research is unit root test and co integration model. And my research is in line with previous one that stationary in the data was found and also some of the variables show significance. In this research real exchange rate are positively significant impact on current account deficit and gross domestic product, gross national income and gross domestic savings has negatively significant impact on current account deficit, in co-integration there are long run association among variables. Vector auto regression estimate (VAR) also used in this research to use to capture the linear inter dependencies among multiple time series.