The Impact of Key Macroeconomic Indicators on Pakistan's Export and Import Performance: A Time Series Analysis (FY2011–FY2024)

This paper investigates the impact of key macroeconomic variables on Pakistan's international trade performance, focusing on currency fluctuations, interest rates, inflation, and foreign direct investment, covering quarterly exports and imports from fiscal year 2011 to 2024. The autoregressive distributed lag (ARDL) bounds test methodology is used to investigate the long-run and short-run relationships between the variables. The findings confirm the long-run relationship, where currency fluctuations significantly boost exports, inflation has a positive impact on both exports and imports, and FDI plays an important role in increasing imports. Interest rates, however, display no discernible long-run impact on trade performance, which indicates that borrowing costs cannot be a major determinant of Pakistan’s trade flows. Short-run dynamics show a mixed impact of currency fluctuation, with immediate beneficial effects on exports offset by negative lagged effects, implying that sustained volatility may damage trade stability. Inflation and interest rates also vary in the short term, highlighting the significance of macroeconomic stability in trade performance. According to Granger causality analysis, inflation predicts exports, and imports impact interest rates, showing important economic interdependencies. The study's diagnostic tests establish model reliability, confirming that the results indicate an absence of serial correlation, heteroscedasticity, and instability issues. These outcomes emphasize the importance of managing inflation, maintaining exchange rate stability, and export-driven FDI initiatives in increasing trade competitiveness. To ensure long-term trade growth, policymakers should prioritize macroeconomic stability and trade-friendly investment policies. Future research should look at additional macroeconomic elements to provide a more complete knowledge of Pakistan's trade performance.