Causes of Trade Deficit and Its Impact on Pakistan’S Economic Growth

The main objective of conducting this research is to assess the causes and impact of trade deficit on the Pakistan's economic growth. When the trade deficit increases it will have negative effects on the stability of trade of a nation. For this study, we collected time series data for the period from 1980 to 2017 from World Bank, IMF, State Bank of Pakistan and Economy survey Pakistan. We have taken Trade Deficit (TD) as dependent variable and Foreign Direct Investment (FDI), Gross Domestic Product (GDP) and trade Volume (TV) as independent variables. ARDL and Error Correction model (ECM) was applied to see the short term and long term effects of trade on economic growth. Our results reveal that foreign direct investment has a positive impact on trade deficit in long run but in short run it is insignificant. Similarly, trade volume and GNI has both negative and positive relationship with trade equilibrium in short run as well as in long run.