Exports and Imports Nexus: Econometric Evidence for Pakistan

Abstract

The main idea of this present effort is to analyze the long-run relationship between Pakistan’s exports and imports by employing advanced techniques like Johansen-Juselius cointegration technique, and to study the short-run dynamics through Granger causality in the VECM framework. The empirical evidence reveals that Pakistan’s exports and imports show a long-run relationship. Thus, the short-run fluctuations between exports and imports will not sustain as in the long run, exports and imports will eventually converge towards an equilibrium state, but improving impact of exports on imports is less than unity in all cases. However, in the short run, causation runs from exports to imports and vice versa. The present endeavor may show a new direction to policy-making authorities.