Impact of Foreign Trade on Economic Growth: Empirical Evidence from Pakistan

Abstract

This research examines the impact of Foreign Trade i.e., exports, imports, foreign direct investment, exchange rate, and trade policies on economic growth in Pakistan using panel data from 2000 to 2022. The study used random effect model to analyze the impact the independent variables on gross domestic product (GDP). The descriptive statistics show that exports, imports, foreign direct investment, and exchange rate have positive means, while trade policies have a negative mean. The correlation analysis reveals that all the independent variables are significantly correlated with GDP. Based on the results of the Multicollinearity test, it resulted that the independent variables are not correlated with one another, indicating the no presence of Multicollinearity. The regression analysis shows that exports, imports, foreign direct investment and trade policies have a positive and significant impact on GDP, while exchange rate have an insignificant impact. The study concludes that exports, imports, foreign direct investment and trade policies are significant determinants of economic growth in Pakistan, while exchange has no significant impact. The study recommends that the government should promote export-oriented policies, attract foreign direct investment, and adopt stable exchange rate and trade policies to enhance economic growth.