Abstract
This paper identifies the impact of foreign direct investment (FDI), the real effective exchange rate and the total labor force on the exports of Pakistan. A Double lag equation model for this investigation was developed in which FDI, exchange rate and labor force play a central role. The underlying conceptual framework of this paper reveals the positive impact of FDI and Labor force on exports of Pakistan while exchange rate shows negative impact. The distinguishing feature of this analysis is to encourage FDI and Effective Labor force which contribute to export development strategies of Pakistan. To estimate the long run and short run connection among the variables, yearly data for the period ranging from 1990-2016 have been analyzed by using Johanson Co-integration and Vector Error Correction model have been applied to determine the response of variables on each other. The result of this study shows that in the long run, FDI and Effective labor force play a vital role in the growth of Pakistan’s exports while in the short run, the influence of exchange rate are very effective for the promotion of exports. It is recommended based on the study that Government should encourage FDI & TLF when developing the policy of trade.
Highlights
International trade performs a significant role to address the economic phenomena
Factors which influence the exports growth of Pakistan, this paper develops an empirical analysis of exports of Pakistan and its determinants which are related to the growth rate in exports, a number of variables determine the exports performance of Pakistan but this focus only on foreign direct investment, total labor force and real effective exchange rate
Each of the variables is in logs; exports (X) foreign direct investment (FDI) total labor force (TLF) and Real Effective Exchange Rate (REER) were stationary in their first difference
Summary
The exporting economies enjoy absolute advantages, specializing and focusing in the production and output of the product which they can made in a more efficient manner, through absolute and comparative economic advantages over other regions Countries can increase their exports and enhance economic growth and which can be achieved, mainly, by refining and improving the quality of the products which they produced and to reduce the cost of production. Various studies identify that foreign direct investment play a vital role, (Chaudhry & Bukhari, 2013) Other factors, such as real effective exchange rate and total labor force, have been found to be important, especially for developing countries like Pakistan. The third part of this study provides the conceptual framework, while the forth part provided results and summary and part five represents the conclusion of the study
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