Impact of Trade Liberalization on External Debt Burden: Econometric Evidence from Pakistan

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Impact of Trade Liberalization on External Debt Burden: Econometric Evidence from Pakistan

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Zafar, Sabahat
Butt, Muhammad Sabihuddin

Abstract

Pakistan’s leading challenge today is to lessen its debt burden in order to pursue a path that leads towards sustainable and impartial growth for poverty diminution. The consequences of trade liberalization are of growing concern, mainly in the emerging economies with severe brim over effects on their debt situation. The major objective of this paper is to discuss the current external debt problem in Pakistan and analyze how its external debt is interrelated with trade liberalization policies and measures .Using data from the last three decades, this paper investigated whether there exist a momentous relationship between external debt and the trade liberalization variables or not. In this case study ARDL bounds testing approach is employed to investigate the long run relationships and Error Correction Method (ECM) for short run dynamics. After finding the order of integration through implementing the Augmented Dickey Fuller (ADF) and Phillips-Perron unit root tests, our finding suggested a significant long run positive association between external debt and trade liberalization is existed in case of Pakistan

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9548.

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Date of creation: 23 Jun 2008
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Handle: RePEc:pra:mprapa:9548

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
F0 - International Economics - - General
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-07-20 (All new papers)
NEP-CWA-2008-07-20 (Central & Western Asia)
NEP-OPM-2008-07-20 (Open MacroEconomics)

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M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326. [Downloadable!]
Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November. [Downloadable!] (restricted)
Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. [Downloadable!] (restricted)
Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.

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