An Empirical Analysis of Determinants of Balance of Payments in Pakistan

This study investigates the determinants of balance of payments for Pakistan between 1981 and 2016. This paper using ARDL bounds testing approach. ARDL technique is used to find the short run and long run relationship of these variables with BOP. The result shows that all of exchange rate, FDI, inflation and GDP have negative relationship with Balance of payment of Pakistan. The empirical results obtained in this paper recommend the policy to decrease balance of payment fluctuations, Pakistan government has to work on both fiscal and monetary policies and structural adjustment in order to encourage and attract private investment flows, target inflation and increase trade.