Determinants of Balance of Payment: A Financial Perspective of the Economy of Pakistan

BALANCE OF PAYMENT

Abstract

Abstract

Pakistan is facing the problem of balance of payment since 1970. The core objective of this research work is to analyze the effect of various determinants of BOP in Pakistan over 1971 to 2022. The ARDL testing approach used for estimation. The results reveal that M1, inflation and economic growth rate are the uppermost negatively influential determinants of BOP. Results also show the direct positive correlation between BOP and foreign debt. The interest rate negatively affects the BOP in the lengthy period but its impact is positive in the near run. Furthermore, a huge part of the national income is transferred abroad to meet the obligations towards foreign countries. These findings suggest that the country should not depend only on foreign debt; rather there should be uniformity between macroeconomic and domestic economic policies of the country. The empirical findings suggest that such economic policies are required which can control the rate of inflation and foreign debt in the country. This will bring stability which ultimately leads to improve the issue of BOP in Pakistan.

       Keywords: money supply, economic growth, inflation rate, foreign debt, interest rate