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The Harberger-Laursen-Metzler Effect: Evidence from Pakistan

  • Tayyaba Idrees

    ()

    (MPhil Student, Department of Economics, Fatima Jinnah Women University, Pakistan.)

  • Saira Tufail

    ()

    (Lecturer in Economics, Department of Economics, Fatima Jinnah Women University, Pakistan.)

Registered author(s):

    According to the Harberger-Laursen-Metzler (HLM) effect, an exogenous temporary increase in the terms of trade leads to an improvement in the current account balance. This paper uses a recursive vector autoregression to investigate empirically the existence of the HLM effect in Pakistan, using a time series dataset for the period 1980–2009. Two important results emerge. First, real income deteriorates with an improvement in the terms of trade. Second, the current account balance also responds negatively to innovations in the terms of trade, which implies that the HLM effect does not exist in Pakistan.

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    Article provided by Department of Economics, The Lahore School of Economics in its journal Lahore Journal of Economics.

    Volume (Year): 17 (2012)
    Issue (Month): 2 (July-Dec)
    Pages: 87-110

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    Handle: RePEc:lje:journl:v:17:y:2012:i:2:p:87-110
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