Relationship

between
international trade
and economic
growth
NAME:
IRSA MALIK
ROLL NO:
3297
TOPIC:
FINAL YEAR PROJECT
 Introduction

• The transfer of money, products, and services across nations is known as

international trade.
• According to Adam Smith and David Ricardo, countries that play an active
role in international markets contribute more to productivity and growth,
rather than the countries engaged in production for the domestic market. On
the one hand, export benefits the country from various aspects by increasing
the employment, providing foreign currency income, increasing the standard
of life, and consequently supporting the economic growth.
• Pakistan's export performance, has remained steady, with a 16% increase
from 2003 to 2006. So the issue is that Pakistan's commodities are
exceptionally focused on couple of things in which, cotton producing, rice,
material and sports products, which account 72% offer in absolute products
during 2008.
Significance of the study:
• The objective of the study is to examine that how international trade
is related with economic growth in case of Pakistan.
• To investigate the impact of international trade on GDP growth of
Pakistan.
• How international trade can effect economic growth.
 Literature review
AUTHOR NAME YEAR COUNTRY DEPENDENT VARIABLE INDEPENDENT FINDINGS
VARIABLE
Yıldız 2020 BRICS-T GDP Import , export export and import had a
statistically significant
and positive effect on
economic growth.
Athar iqbal, Irfan 2012 Pakistan Real GDP REAL EXPORTS, The emerical result from
hameed & komal devi TOT(terms of trade) granjer casuality
technique indicate
unidirectional casuality
from GDP to exports in
Pakistan.

Adeleye & Adeteye 2015 Nigeria GDP BOT(Balance of Trade), Total Export (TEX)
TIM(Total Import ),TEX remains positive and
(Total Export ) , BOP significant while others
(Balance of Payment) remain insignificant.

Richard Nana Boakye & 2017 Ghana GDP FDI, EXPT, The study found out that
Edward Gyamfi INF,REM,EXP,CAB export, foreign direct
investment, gross capital
formation, remittance
money per capita and
external debt per capita
have a positive
relationship with
economic growth.
 Data and methodology:

• Times Series Data from (1991-2022), collected from different organizations such as
WDI(World Development Indicators), FAO .
• This study examined Relationship between international trade and economic growth
of Pakistan.
• Dependent Variable
 GROSS DOMESTIC
Independent Variable PRODUCT (GDP)
Imports
Exports
Inflation
1 lnGDPt = α 0 + α1 ln(IMP)t + α2 ln(EXP)t +
α3 ln(INF)t + µt
Where,
Ln GDP = Gross Domestic Product
Ln IMP = Imports of goods and services
Ln EXP = Exports of goods and services
Ln INF = Inflation, Consumer price.
 Augmented Dickey-Fuller Test (Unit Root
Test):

VARIABLES TEST STATISTICS PROBABILITY ORDER OF INTEGRATION

Ln GDP -5.052954 0.0003 I (1)

Ln IMP -4.828044 0.0005 I (1)

Ln EXP -5.196878 0.0002 I (1)

LN INF -5.391218 0.0010 I (0)

 ARDL (Auto Regressive Distributed Lag)

Long run relationship among dependent and independent variable is analyzed

through ARDL and short run relationship is also analyzed through ECM.
 ARDL BOUND TEST
ARDL bound test is used to determine either there is an impact in long run or not.
F-Statistic is 15.03.

SIGNIFICANCE LOW BOUND UP. BOUND

10% 2.37 3.2

5% 2.79 3.67

2.5% 3.15 4.08

1% 3.65 4.66
 ARDL LONG RUN RESULT

VARIABLES COEFFI. STD. ERR T-STATS PROBAB.

Ln IMP ** 0.265089 0.095563 2.773973 0.0101

Ln EXP** 0.150272 0.102885 1.460580 0.1561

Ln INF ** -0.084065 0.023508 -3.576031 0.0014

 Short Run and ECM
Regression:

VARIABLES COEFFICIENT STD. ERROR T-STATISTIC PROBABILITY

D(Ln IMP) 0.274180 0.101439 2.702915 0.0127

D(Ln EXP) 0.203843 0.147301 1.383852 0.1797

D(Ln INF) -0.051488 0.023737 -2.109103 0.0407

CointEq(-1) -0.332994 0.060219 -5.529690 0.0000

The finding indicates that imports has a positive impact on economic growth (GDP).
 CONCLUSIONS

• This study uses time series data from 1991 to 2022 to investigate the relationship
between Pakistan's economic growth and international trade.
• . In this study import and export have positive impact on economic growth.
• Inflation have a negative but significant impact on GDP.
• If inflation increase the price of goods and services also increase, this effect cost of
production which decrease the profit of producer due to which price of these goods
increase and we produce less so exports decrease and GDP also decrease.
 Policy recommendations:

• Develop infrastructure projects to improve connectivity for trade.

• Strengthen international cooperation to address trade disputes and barriers.
• Support small and medium-sized enterprises (SMEs) to participate in global trade
• Invest in trade education and training programs to enhance competitiveness.
• Promote sustainable trade practices to protect the environment.