Managing The Impact of Changes in Discount Rate, Forex Rate, Exports & GDP on Imports of Pakistan

Abstract

The purpose of this study is to investigate how changes in macroeconomic indicators, such as GDP, exports, discount rate, and Forex rate, affect Pakistani imports. It is widely acknowledged that the world has become a global village, with no state being able to meet its own needs for goods and services. As a result, these states are forced to import goods and services that would be extremely expensive to produce locally due to a lack of raw materials. Imports are crucial to global trade because they enable nations to buy raw materials from other countries, transform them into completed goods, and then export those goods for significant profit. Maintaining a positive balance of payments requires the state to maintain an appropriate balance between its imports and exports. Since importing goods and services from overseas requires paying significant foreign exchange, it is imperative that only necessities be imported and that luxury items be avoided. Using data of independent variables, such as export, GDP, discount rate, and Forex rate, and dependent variable, namely import spread over a period from 1972 to 2020, descriptive statistics and diagnostic tests, such as Unit root test, ARDL tests, Bound test, Multicollinaerity, Heteroscedasticity, Correlation, and Autocorrelation, have been conducted. In order to examine the existence of a long-term balance link between import, GDP, interest rate, export, and foreign exchange rate, we have adopted the bounds analysis method to cointegration, which was developed inside the ARDL structure. The results provide strong evidence that the GDP, interest rate, and exchange rate all have an important impact on determining the long- and short-term responses to our nation's imports.

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