Abstract
This study considers the long run relationship between the liberalization of trade, capital formation and the economic growth of Pakistan by using the time series data from 1975-2013. The main aim of this study is to examine that how much liberalization of trade and capital formation affects the economic growth of Pakistan in long run. The approach that has been used for empirical analysis is Auto Regressive Distributed Lag (ARDL) model. Under the ADF test capital formation (CF) is stationary at its first level but the trade openness (TO) and GDP is stationary at its first difference. Moreover, the granger casualty test is evident that there become a casual relationship between the trade openness and GDP. The result of this study shows that both the trade openness and the capital formation determined the economic growth in long run and they both have statistically significant effect on the GDP. Furthermore it has has been depicted from the study that the trade has a vital role to influence the economic growth.
Highlights
The theoretical intent of this paper is to establish a relationship between the economic growth of the Pakistan and its liberalization of trade and the capital formation
The main goal of every country is to minimize the cost of the production and to increase the efficiency and this is just due to export because export heighten the prosperity of the economy and the production cited by K Menyah (2014)
In the given data the coefficient of the TO is .3381 and on the other hand statistically it has been significant which has been interpreted that 1% increase in the trade openness will lead to .33% increase in the GDP of Pakistan in long run
Summary
The theoretical intent of this paper is to establish a relationship between the economic growth of the Pakistan and its liberalization of trade and the capital formation. On the other hand after Gawadur Port project there become revolutionary changes in the openness of the trade, after these change in Pakistan from past two decades that become a first-rate opportunity to explore the area on research by using the given variables from the time span of 1975-2013. Miloud (2014) explore the relationship of the openness of the trade with the economic growth of the Algeria by using the model ARDL and gets two different result, first one is the significant relation of the openness and the development of the Algeria but on the other hand by checking along with one more independent variable it gives a insignificant results. The separate features of this paper is to explore all the significant and the relevant variables in the category of the macro-economic level which were not present in any other studies from the given time series data from 1975-2013
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