Trade Deficit and Economic Growth: Using ARDL Technique for the Economy of Pakistan

Abstract

The current study aims to find out the impact of the trade deficit on economic growth in Pakistan. For this purpose times, series data is used from 1980 to 2015. ADF test is used to know about the order of stationarity. The estimation technique is used Autoregressive Distributed Lag (ARDL) based on the outcomes of the AFD test. Results show that the impact trade deficit is negative and significant on output growth in the short-run as well as in long run. The study suggests that the government should improve the balance of trade by increasing the output and decreasing unemployment. Population growth rate must be controlled, Literacy rate should be increased, stable foreign exchange policy and inflation must be controlled.