EFFECTS OF EXCHANGE RATE VARIATIONS ON ECONOMIC GROWTH: TIME SERIES EVIDENCE FROM PAKISTAN

Abstract

This study examines the relationship between key economic variables and currency fluctuations in Pakistan from 2000 to 2019, utilizing data from the Pakistan Bureau of Statistics, World Bank, and State Bank of Pakistan. Economic variables such as Gross Domestic Product (GDP), Pakistani exports and imports, and exchange rates are analyzed using the Augmented Dickey-Fuller (ADF) test for data stationarity. Results indicate non-stationarity at levels but stationarity at initial differences. Regression analysis reveals a significant correlation between imports and exchange rates (t-statistics = 2.76), but no significant correlation between GDP and exchange rates (t-statistics = 0.54). Lack of clear positive correlations suggests the need for further studies incorporating diverse variables. The study highlights the importance of exchange rate policies aligned with actual economic conditions over strategies focused solely on export competitiveness, which may have adverse effects on the economy.