Effects of International Trade on Economic Growth: The Case Study of Pakistan

Abstract

The study examines the impact of total exports to GDP ratio, imports to GDP, terms of trade, trade openness, investment to GDP ratio, and inflation on the economic growth of Pakistan. The empirical analysis is conducted by using time series data from 1973-2010. Chow test is used to test the structural break and model fitness. The OLS (Ordinary Least Square) technique is used to
detect the relationship between exogenous variables and endogenous variable. The estimated results show that explanatory variables have positive and significant impact on the economy of Pakistan. The results also show that an increase in the import of raw materials, the production, employment and output of the country is boosted up. Similarly, Trade openness has also positive
and significant influence on the economy of Pakistan. It concludes that international trade may play an important role to enrich the economy of Pakistan.