Impact of Net Export on Gross Domestic Product (GDP) of Pakistan

Abstract

This study analyses the effects of net exports upon Pakistan's GDP with an analysis of annual time-series data covering 1978 to 2017. The dependent variable will be GDP in this research with exports, imports, gross fixed investment, Government expenditure, interest paid on external debt and Private consumption representing the independent variables. The ADF unit root test results indicated that the variables are stationary primarily at first differencing which allows the ARDL approach to be employed. The ARDL bounds test provided evidence of long run cointegration between the variables through a F-statistic of 5.080 which was above the 5% upper bound (3.61). Long run results indicated that exports have a positive influence on GDP; (β=0.1735; p<0.001) alongside a positive effect from gross fixed investment (β=0.1862; p<0.001), government expenditure (β=0.1740; p<0.001) and private consumption (β=0.9041; p<0.001). Imports were found to have a negative impact upon GDP (β=-0.2735; p<0.001) whilst interest paid on external debt also has a negative affect (β=-0.0272; p=0.020). The short run results were also found to be significant with an ECM coefficient of negative significance (β=-0.9989; p<0.001) confirming that adjustments to long-run equilibrium occur rapidly. This study recommends the promotion of export activity through improved productivity; increased levels of productive investment; and an emphasis on the importation of capital goods as means of achieving such growth in exports and GDP.

Keywords:Gross domestic product, time series, trade balance, cointegration