Regional trade and macroeconomic indicators in Pakistan: A cointegration analysis

Abstract. This paper empirically estimates the relationship among selected variables trade, agricultural value-added foreign direct investments, domestic credit to private sectors, official exchange rate and gross capital formation, and population, for the particular Southeast Asian economies including Pakistan, China, Malaysia, India, and South Korea during 1985-2016. Using autoregressive distributed lag model (ARDL) approach, this study statistically proved the presence of long time association among national credit to private zones, foreign direct investment, population, in addition to gross capital formation for the selected Southeast Asian countries. This study further shows gross capital formation significantly contributes during the long and short period towards trade. Albeit, national credit to private sectors, overseas direct investment, and population maintain a supportive relationship with trade but they are not found to be significant. Furthermore, agricultural value-added and the official exchange rate uphold a non-supportive relationship with the trade. The official exchange rate has a negative but insignificant relationship during the long period however all through the short period has an encouraging and significant association with trade. Whereas agricultural value-added maintains significant negative undesirable relationship through the trade throughout the long and short-run. The strategy implication is that selected countries need to focus on outlays on the addition of fixed assets that consist of machinery, land improvement, structure of roads, railways and drains, stable and profitable industrial buildings, schools, hospitals, universities and work in progress that would help in attracting the FDI in economies to boost the trade.Keywords. Trade, Cointegration, Variables, Growth, Short and long-run.JEL. F35, G10, G11, G15