Three Essays on Macroeconomy of Pakistan

Date of Award

6-2020

Degree Name

Doctor of Philosophy

Department

Economics

First Advisor

Dr. Mark Wheeler

Second Advisor

Dr. Susan Pozo

Third Advisor

Dr. Kevin Lee

Keywords

Government debt, remittances to Pakistan, real exchange rate volatility

Abstract

The objective of my dissertation is to investigate the macroeconomic impacts of federal government domestic debt, workers’ remittance inflows and the real exchange rate and real exchange rate uncertainty on Pakistan.

The first essay examines the Ricardian equivalence hypothesis for Pakistan using a vector autoregressive (VAR) model. The sample period extends from June 2002 to September 2018. The results are reported using variance decompositions (VDCs) and impulse response functions (IRFs). The base model contains five variables and is estimated using 3 lags. As a robustness check, a six-variable model with 6 lags is also estimated. I find support for the idea that wealth does not increase as government debt increases. The results remain robust to a change in ordering of the variables and a change in VAR lag length.

The second essay investigates the impact of workers’ remittance inflows on the macroeconomy of Pakistan using VAR models. The analysis is performed using two separate datasets: a monthly dataset spanning the period 2003M7 to 2019M3 and a quarterly dataset covering 1980Q3 to 2012Q2. The results for models estimated using both datasets are reported using VDCs and IRFs. For both datasets, I find that there is no impact of workers’ remittance inflows on selected variables from Pakistan for the sample period considered. This result remains robust to a change in the variables, alteration of ordering of the variables and a change in VAR lag length.

The third essay examines the impact of shocks to the real exchange rate and real exchange rate uncertainty (volatility) on gross foreign direct investment (FDI) in Pakistan using a VAR model. The sample period extends from June 2002 to March 2019. The results are reported using variance decompositions and impulse response functions. The analysis is conducted using two separate measures of the real exchange rate: the US-Pakistan bilateral real exchange rate and the China-Pakistan bilateral real exchange rate.

Each VAR contains the price level, real output, a measure of the bilateral real exchange rate, the volatility of the bilateral real exchange rate, the stock market general index of share prices, the long-term interest rate, and FDI. In general, I find that shocks to the real exchange rate and real exchange rate volatility do not have significant impacts on FDI. However, shocks to real output and FDI itself explain significant portions of the forecast error variance in FDI at all forecast horizons. The IRFs show that shocks to the real exchange rate and real exchange rate volatility do not impact FDI significantly at any forecast horizon. The results remain robust to the addition of the variable openness, alteration in the ordering of the variables, and a change in VAR lag length.

Access Setting

Dissertation-Campus Only

Restricted to Campus until

6-30-2030

This document is currently not available here.

Share

COinS