Academic journal article Global Business and Management Research: An International Journal

Evaluating the Importance of Exports and Its Determinants in Economic Growth of Pakistan: An Empirical Analysis from ARDL Approach

Academic journal article Global Business and Management Research: An International Journal

Evaluating the Importance of Exports and Its Determinants in Economic Growth of Pakistan: An Empirical Analysis from ARDL Approach

Article excerpt

Abstract

Purpose: Different countries have different economic efficiency in production of commodities depending mostly on geographical location, technological development and availability of natural resources, capital and skilled labours, social setup, customs, some financial and economic priorities. Pakistan is a developing country frequently depending on export of primary and low value-added Products. This research study endeavours to evaluate the importance of sectoral exports and its main determinants in economic growth of Pakistan.

Design/Methodology/Approach: This is an empirical study to evaluate the importance of exports and its determinants in economic growth of Pakistan using annual time series data for the period of 1972-2015. For that purpose growth model was developed and regressed by applying different analytical techniques that includes unit root test, Auto-Regressive Distributed Lag Model, ARDL bound testing, Wald test, ARDL co-integration and long form. In addition stability and diagnostic test were applied to check the reliability of results.

Major Findings: The empirical results obtained from regression analysis of the variables data illustrates constructive and noteworthy effect of exports, its determinants and other trade policy variables on economic growth of Pakistan.

Originality/Value: The study provides a guideline for developing countries and especially for Pakistan in order to bring considerable increase in exports and trade. Government of Pakistan needs to fetch improvements in socio, political and economic factors like infrastructure, technology, political and economic stability, improvements in quality and production, skilled, efficient and innovative manpower, proper access to world market, political stability, competitiveness, price and bargaining power in trade negotiations, considerable research and development to enhance exports growth that leads to significant contribution in economic activities of Pakistan.

Keywords: Economic Growth, Exports and it's determinates, Auto-regressive Distributed Lag model approach, ARDL Co-integration and long form, Stability and Diagnostic Tests.

Background of the Study

Economic growth can easily be defined as "an increase in the ability of an economy to generate goods and services, from one time period to another". GDP is usually gauges the level of economic strength of a country, and an indicator of living standard and quality of life of a country. GDP could be used accurately for comparison of productive competency of world nations, as the method of computing GDP is standardized from economy to economy. Year to year inflation adjustment of GDP provide flawless assessment of existing GDP dimensions with prior GDP ratios. By such means GDP can track economic growth or recession for long period of time.

Pakistan is considered to be a small economy on the map of international market as its GDP is US$ 246.[88.sup.1)]b and share of Pakistan in international trade [0.18.sup.2)] percent. An important obstacle in the development of Pakistan is inefficient utilization and exploitation of natural resources since its very beginning. The period of quantum growth and development was postponed due to deficient exportable surplus which was attributed to slow progression in production and manufacturing sector. With the exception of 1950-51 and 1972-73, Pakistan faces unfavourable balance of trade, entails that imports exceeds exports throughout the economic history of Pakistan. Although exports from Pakistan diminished by 43.18 percent in 1950's; the monetary value of the products exported were 1343 million rupees. In 1958-1969 industries were nourished and pattern of trade and manufacturing was modified, this era can be relatively dedicated as phase of industrial and trade development in history of Pakistan. After the separation of Bangladesh in 1971; the shape and pattern of Pakistan's foreign trade was changed to great extent due to considerable contribution of exports and foreign exchange reserves from East Pakistan. …

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