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The Harberger-Laursen-Metzler Effect: Evidence from Pakistan

Author

Listed:
  • 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.)

Abstract

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.

Suggested Citation

  • Tayyaba Idrees & Saira Tufail, 2012. "The Harberger-Laursen-Metzler Effect: Evidence from Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 17(2), pages 87-110, July-Dec.
  • Handle: RePEc:lje:journl:v:17:y:2012:i:2:p:87-110
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Terms of trade; current account; economic growth; recursive VAR; Pakistan;

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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