Analysis of Exchange Rate Effect on Trade Balance in Pakistan

Abstract

Exchange rate is becoming one of the major issues in trade balance of Pakistan. This study has studied the liaison between trade and exchange rate, income variables for 1990-2016. The Empirical investigation I applied Auto regression (AR) Model used in order to find the correlation between trade balance and other selected variables, this result suggests that trade is significantly positive related to rate of exchange, and inversely related to income during the selected sample period. The negative sign with income shows that the relationship between the determinants is negative or inversely related with Trade balance. On the other hand positive sign with exchange rate shows direct relationship with Trade balance.