Impact of Exchange Rate on Balance of Trade of Pakistan: An ARDL Approach

Abstract

The premier purpose of this research paper is to investigate the effect of exchange rate on trade balance of Pakistan. Time series data is used of different variables like Trade Balance, Exchange Rate, Inflation and Exports from 1976 – 2020. For this purpose, the study applied Autoregressive Distributed Lag (ARDL) approach and Bound Test to achieve short run and long run results. The result indicates that, exchange rate put positive but insignificant impact on trade balance in Pakistan. It shows that high rate of exchange with respect to USD is harmful for trade balance of Pakistan. The study suggests that stable rate of exchange is good for the trade balance