Intra Industry Trade, Fiscal Policy and Terms of Trade of Pakistan: A Long Run Analysis Using ARDL Technique
Pakistan Journal of Humanities and Social Sciences (PJHSS), Jan-June 2016, Volume 4, No. 1, Pages 1-16
16 Pages Posted: 2 Dec 2015
Date Written: December 1, 2015
This study investigates long run relationship between Intra Industry Trade, fiscal policy and Terms of Trade of Pakistan. Considering the intention, time series data having time span from 1972 to 2014 is chosen. Data is collected through various sources like World Development Indicators, Handbook of Statistics on Pakistan Economy (2010) and Economic Survey of Pakistan (2014-15). After observing mixed stationary results of the variables [I(0), I(1)] using Augmented Dickey Fuller test, autoregressive and distributed lag model technique is applied for the analysis. For estimating elasticities of terms of trade with respect to the variables, log-log form of the model is utilized. The study reveals Intra Industry Trade, Real Gross Capital Formation and Real Government Expenditure as significant causes of improving Terms of Trade of Pakistan. On the other side, Terms of Trade of Pakistan is deteriorated due to real Gross Domestic Product and Real Foreign Direct Investment.
Keywords: Intra Industry Trade, Real gross domestic product, real foreign direct investment, real government expenditure, Real Gross Capital Formation, Autoregressive and Distributed Lag Model
JEL Classification: C12, C22, C87, D24, L16, L66, O23, Z38
Suggested Citation: Suggested Citation