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Prospects for connectivity and integration between Pakistan and ASEAN + 3 + 3 countries through the lens of optimal currency area theory

Author

Listed:
  • Jamshaid Ur Rehman

    (Government College University Lahore)

  • Muhammad Nadeem Javaid

    (Karachi School of Business and Leadership (KSBL))

  • Nisar Ahmad

    (University of the Punjab)

Abstract

This study explores the feasibility of forming an optimal currency area (OCA) within the ASEAN + 3 + 3 group, including Pakistan, using the extended generalized purchasing power parity (G-PPP) theory. The objective is to determine whether these countries share a common stochastic trend and could form a stable OCA, considering the impacts of the Asian Financial crisis (AFC) and the Global financial crisis (GFC), with the US, China, and Japan serving as base countries, as predicted by G-PPP theory. The analysis employs the Johansen (Econ J 3:215–49, 2000) methodology, incorporating up to two exogenous structural breaks. The results suggest the presence of 127 out of 179 long-run G-PPP relationships with Pakistan, indicating greater potential for an OCA within sub-groups of countries that include Pakistan in the ASEAN + 3 + 3 setting. Stability tests confirm the parameter stability for Pakistan’s integration with ASEANBig5 + 3 + 3 countries in the post-AFC period.

Suggested Citation

  • Jamshaid Ur Rehman & Muhammad Nadeem Javaid & Nisar Ahmad, 2025. "Prospects for connectivity and integration between Pakistan and ASEAN + 3 + 3 countries through the lens of optimal currency area theory," Quality & Quantity: International Journal of Methodology, Springer, vol. 59(3), pages 2825-2859, June.
    • Handle: RePEc:spr:qualqt:v:59:y:2025:i:3:d:10.1007_s11135-025-02085-y
    DOI: 10.1007/s11135-025-02085-y
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    Keywords

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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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