Exploring Import-Export Dynamics: A Time Series Analysis of Pakistan's Trade Trends

Abstract

Analyzing the time series behavior of imports and exports is crucial for understanding the trade dynamics of any country, especially for a developing nation like Pakistan facing a trade deficit. This paper delves into the import and export trends of Pakistan to shed light on the underlying patterns and relationships between these variables. Initially, unit root tests are conducted to assess the stationarity of the data. The results indicate that the import and export data for Pakistan are non-stationary, highlighting the need for further analysis to uncover any underlying long-term relationships or trends. Next, Johansen co-integration tests are employed to explore the existence of co-integration between imports and exports. The findings reveal the presence of only one co-integration relationship, suggesting a long-run equilibrium relationship between these two variables. This implies that changes in imports are associated with corresponding changes in exports over the long term, indicating a mutual dependency between the two variables. Further analysis reveals bidirectional causality in the long run, indicating that changes in imports can influence exports and vice versa. However, the short-run dynamics exhibit an unstable situation, suggesting a more volatile relationship between imports and exports in the short term. Overall, the findings of this paper suggest that Pakistan is not violating its international budget constraints, indicating that its trade dynamics are within reasonable bounds. However, the unstable nature of short-term import-export relationships underscores the need for policymakers to implement measures aimed at promoting stability and sustainability in trade activities. By gaining insights into the time series behavior of imports and exports, policymakers can develop more effective strategies to address trade imbalances and foster economic prosperity in Pakistan.