Is Pakistan’s Economic Growth Balance of Payments Constrained?

Abstract

This study provides empirical evidence in support of the Balance of Payments Constrained Growth hypothesis. The cointegrating vectors obtained from Johansen analysis are used to study the dynamics of the trade variables. The average growth rates predicted by the Balance of Payments Constrained Growth hypothesis are not significantly different from the actual average growth rates over the period 1973–2005. The study calls for a strong need to increase Pakistan’s exports, the only way to relax the constraint in the long run.