The Harberger-Laursen-Metzler Effect: Evidence from 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.

The Mediating Role of Institutional Quality on the Nexus between Oil Price Fluctuations and Current Account Deficits in Nigeria: A nonlinear ARDL Approach

“…According to research by Saira Tufail et al (2012), from 1981 to 2010, there were eight oil-producing countries (Iran, Nigeria, Egypt, Pakistan, Turkey, and Bangladesh), oilimporting countries (Bangladesh), and oil-transiting countries (Indonesia and Malaysia).…”

Does Harberger–Laursen–Metzler (HLM) Exist in Pakistan? Cointegration, Causality and Forecast Error Variance Decomposition Tests

“…Therefore, it is imperative to adopt relevant and current techniques which could ensure maximum accuracy in order to derive conclusive evidence which could provide guidelines to policymakers. For example, Idrees and Tufain (2012) test HLM effect using VAR test in a recursive form, and this type of technique only captures the linear interdependence of multiple time series; however, the study of Islam et al (2013) and Jawaid and Raza (2013) employed ARDL, the VECM Granger test to check HLM effect for Bangladesh and India, respectively. The later study uses the latest technique of estimation and also finds the long-run relationship among the series and hence gives more reliable results for policy design.…”

“…Correia, Neves and Rebelo (1995) checked the same effect on small open economy for terms of trade and real exchange rate. The later studies included Otto (2003), study of Broda (2004) on Malaysian data confirming the long-run relationship, studies by Kaplinsky (2006), Hung-Ju and Hsu (2009), Santos-Paulino (2010), Jawaid and Waheed (2011), Hirose and Ikeda (2012), Idrees and Tufail (2012) and Jääskelä and Smith (2013) and the most recent studies of Bahmani-Oskooee and Xu (2013) and Islam, Shahbaz and Tahir (2013) on the HLM effect on Korea–US and Bangladesh, respectively.…”