DIRECTION OF TRADE IN PAKISTAN

This research study tried to analyze the short run as well as long run direction of balance for the economy of Pakistan by employing error correction model (ECM) and Johansen Co-integration approach. The results of this study indicates that real effective exchange rate, gross domestic product, average Tariff rate, infrastructure, foreign direct investment, domestic household consumption are very important and significant parameters to trace the direction of balance of trade. For short run dynamics analysis the model was developed and utilized on the basis of error correction mechanism which identified disequilibrium that will be adjusted within one year.