Fiscal Policy and Current Account Dynamics in Case of Pakistan

The study empirically investigates the effects of fiscal policy or government budget deficit shocks on the current account and the other macroeconomic variable: real output, real interest rate and exchange rate for Pakistan over the period 1960-2009. The structural Vector Autoregressive model is employed; the exogenous fiscal policy shocks are identified after controlling the business cycle effects on fiscal balances. The results suggest that an expansionary fiscal policy shock improves the current account and depreciates the exchange rate. The rise in private saving and the fall in investment contribute to the current account improvement while the exchange rate depreciation. The twin divergence of fiscal deficit and current account deficit is also explained by the output shock which seems to drive the current account movements and its comovements with the fiscal balance.Restricted Vector Autoregressive model, current account, government budget deficit, fiscal policy, exchange rate

Cointegrated money in production function: evidence from a developing country

The notion that real money balances is a factor input has attracted considerable amount of attention from researchers and academicians. However, the debate is controversial and the consensus has yet to be developed. This issue becomes more important when a country follows contractionary monetary policy to curb inflation. The limited research for developing countries with sophisticated econometric techniques powered us to conduct this study. The underlying study employs cointegration approach to investigate the validity of money in production function of a developing country for the period 1964-2008. The cointegration results confirm money as an important factor input in the production function in the long run. The variance decomposition results surface money as greater contributor than labor and capital to output variability.Money, Production Function, Cointegration

Foreign Aid and Growth Nexus in Pakistan: The Role of Macroeconomic Policies

Despite receiving large quantities of foreign aid, Pakistan, like many other developing countries, has remained stagnant and become more aiddependent. This grim reality has provoke d a vigorous debate on the effectiveness of aid. This study examines the effectiveness of aid, focusing on the ongoing debate on the interactive effect of aid and policy on sustainable economic growth. The empirical analysis is based on the ARDL cointegration approach, using the data for the period 1960 to 2008. The empirical findings are that foreign aid and real GDP have a negative relationship, while the aid-policy interactive term and real GDP growth have a positive and significant relationship. Interesting results emerge when aid-GDP alone is introduced into the growth equation and has an insignificant positive coefficient in the long run and a negative and weakly significant coefficient in the short run, while the aidpolicy interactive term has a positive and significant coefficient both in the short run and the long run. When we disaggregate aid in terms of the bilateral and multilateral components, bilateral aid is significantly positive in the short run and multilateral aid is insignificant, while the aid interactive term is positive in both cases. The results strongly support the view that foreign aid does have a positive impact on economic growth in Pakistan, though conditionally so, i.e., if based on sound macroeconomic policies.Foreign Aid, Macroeconomic policies, Economic Growth, Pakistan, ARDL

The price puzzle and monetary policy transmission mechanism in Pakistan: Structural vector autoregressive approach

This paper address the issue of monetary policy effectiveness and the price puzzle, a positive response of prices to monetary tightening, in Pakistan. Study examines the effects of monetary policy shock on price level and other macroeconomic variables such as output, exchange rate and money supply within the structural VAR framework over the period 1992: M1 to 2010:M08. We find that a contractionary monetary policy shock has a positive effect on prices and the output increase over some horizon following the monetary tightening but continuously falls after initial rise. The results also indicate that monetary contractions in Pakistan over period reviewed associated with persistent depreciation of domestic currency value relative to the U.S. dollar.Monetary policy, Price puzzle, Structural VAR, Pakistan

Impact of Remittances on Economic Growth and Poverty: Evidence from Pakistan

The study focused on the importance of remittances inflow and its implication for economic growth and poverty reduction in Pakistan. By using ARDL approach we analyze the impact of remittances inflow on economic growth and poverty in Pakistan for the period 1973-2007. The district wise analysis of poverty suggest that overseas migration contributes to poverty alleviation in the districts of Punjab, Sindh and Balochistan however NWFP is not portraying a clear picture. The empirical evidence shows that remittances effect economic growth positively and significantly. Furthermore the study also finds that remittances have a strong and statistically significant impact on poverty reduction thus suggesting that there are substantial potential benefits associated with international migration for poor people in developing countries like Pakistan. So the importance of remittance inflows can not be denied in terms of growth enhancement and poverty reduction that consequently improves the social and economic conditions of the recipient country.Remittances; Growth; Poverty; Pakistan

Analyzing Behavior of Polymer Modified Asphalt Using Master Curve Approach

In Pakistan, asphalt pavements are experiencing a high rate of deterioration due to rutting and fatigue cracking. These problems arise in asphalt pavements due to the use of improper binder characterization and mix design. It is believed that polymer modification can be employed to improve binder ductility and durability. Therefore, the objective of this study is to analyze the behavior of virgin and polymer modified asphalt at a range of temperature and rate of loading. Two virgin and seven polymer modified asphalt (PMA) samples were tested using Dynamic Shear Rheometer. Master curves were developed for complex shear modulus by applying a shift factor to log of time at each temperature to the reference temperature. The major finding is that a decrease in the temperature susceptibility was observed for PMA samples; that is relatively lower stiffness at lower temperature and relatively higher stiffness at higher temperature. These polymer modification results are beneficial in improving the performance of flexible pavements

Role of Osmolytes and Antioxidant Enzymes for Drought Tolerance in Wheat

Plants are vital to life as their presence maintains ecosystem on this living globe. Environmental stresses trigger multiple responses initiated by plant cells to save plant life, from altered gene expression up to changes in cellular metabolism to regulate plant growth rates, which lead to better crop yield. The production of different osmoprotectants like proline, glycine-betaine (GB), trehalose, and antioxidant enzymes like superoxide dismutase (SOD), catalase (CAT), and ascorbate peroxidase has shown a promising role to keep away cells from immediate cellular damage. Root-to-shoot ratio was enhanced in the drought-affected genotypes, while osmolytes and antioxidant enzymes take up the role to overcome drought situation in wheat germplasm. PEG-induced protocol was used to find out the production of osmolytes (proline, glycine-betaine, and trehalose) and antioxidant enzymes (SOD, CAT, and APX) biochemically. The levels of antioxidant enzymes and osmolytes were enhanced significantly in all germplasms indicating the defensive measures of plant cells in drought situation. DNA fingerprinting results have shown that the different wheat germplasms have an association with the levels of osmoprotectants and antioxidant enzymes during drought stress

Fiscal Policy and Current Account Dynamics in the Case of Pakistan

The relationship between fiscal policy and the current account has long attracted interest among academic economists and policymakers after introduction of the standard intertemporal model of the current account by Sachs (1981) and its extension by Obstfeld and Rogoff, (1995) in open economy macroeconomics. There are two major strands of the current account literature Mundell-Fleming [Mundell (1968) and Fleming (1967)] and Ricardian equivalence [Barro (1974, 1989)] to explain such variations in the deficits. According to Mundell-Fleming model budget deficits cause current account deficits through stimulating income growth or exchange rate appreciation [Darrat (1988); Abell (1990); Bachman (1992) and Bahmani-Oskooee (1992)]. On the other hand, there is Ricardian view that the financing of budget deficits, either through reduced taxes or by issuing bond does not alter present value wealth of private households since both temporarily reduced taxes and issuance of bonds represent future tax liabilities [Kaufmann, et al. (2002); Evans (1989); Miller and Russek (1989); Enders and Lee (1990) and Kim (1995)]. The underlying reason is that the effects of fiscal deficits on the current account depend on the nature of the fiscal imbalance. For example, in a simple theoretical model in which Ricardian equivalence holds, a cut in lump sum taxes and the ensuing fiscal deficit would not affect the current account as the private savings increase will offset the fiscal deficit but investment will be unchanged. Conversely, a transitory increase in government spending will increase both the fiscal deficit and the current account deficit, a case of twin deficits. And a permanent increase in government spending will have no effects on the current account while its effects on the fiscal balance will depend on whether the extra spending is financed right away with taxes (in which case the fiscal balance is unchanged) or whether it is financed with debt (future taxes) in which case the fiscal balance worsens. Thus, fiscal deficit may or may not lead to current account deficits depending on the nature and persistence of the fiscal shock. There is also a third scenario relate to Recardian view that portrays the possibility of negative relationship between the deficits where, for example, output shock give rise to endogenous movements and two deficits are divergent

The Price Puzzle and Monetary Policy Transmission Mechanism in Pakistan: Structural Vector Autoregressive Approach

The prime objective of economic policies is to increase the welfare of the general public and the monetary policy supports this broad objective by focusing its efforts to promote price stability. The growing importance of monetary policy stabilisation efforts may reflect both political and economic realities. Understanding the transmission mechanism of monetary policy to inflation and other real economic variables is imperative for central bankers to conduct monetary policy effectively. High inflation reduces growth by reducing investment and productivity growth which reduces the welfare, gives a theoretical foundation for the choice of price stability as an objective of monetary policy. These arguments about monetary policy objectives lead to the choice of price stability as the single or primary objective of monetary policy. Monetary policy is one of the important tools with the monetary authorities to achieve the objectives of price stability. There is extensive theoretical as well as empirical literature available on the effects of monetary policy shocks on the real economic aggregates and prices

Rasch Calibration of General Science Test at Grade-VIII in Pakistan

The present study aimed at calibration of General Science achievement test for grade (VIII) through Rasch Model. For this purpose a General Science achievement test comprising 45 items was constructed from the text book of General Science for class VIII. Finally the test was administered to 300 students (M/F) in different high schools for boys and girls in Multan District. The answer sheets were scored and results were tabulated. Eleven (11) items were rejected on the basis of F, D and. Fifteen (15) items were to be improved on the basis of F, D. Remaining all items were good items. Rasch Model indicates that overall test is good to measure the achievement of the students class (VIII) in the subject of General Science. On the basis of findings, major conclusions were drawn: One item was rejected on the basis of facility index (F). Twelve (12) items need improvement on the basis of facility index (F). Thirty two (32) items were very good items on the basis of facility index (F). Seven items were rejected on the basis of discrimination index (D). One item needed improvement on the basis of discrimination index (D). Thirty seven (37) items were good items on the basis of discrimination index (D). Three items were rejected on the basis of phi-co-efficient. Two items needed improvement on the basis of phi-co-efficient. Forty items were good on the basis of phi-coefficient. Test has high positive test reliability value.22 distracters were to be rejected as attempted by less than 5%.The distracters D(27), B(28), A(31), D(37), B(41), A(43) and B(10) were distracters attracted by high achievers more than low achievers, so they were rejected