Analyzing the Impact of Real Effective Exchange Rate and Investment on Trade Deficit in the United Kingdom

Authors

  • Allah Ditta Higher Education Department, Govt. of the Punjab
  • Ruqayya Ibraheem The Islamia University of Bahawalpur, Pakistan.
  • Muahammad Ayub Bahauddin Zakariya University, Multan, Pakistan.

DOI:

https://doi.org/10.52131/pjhss.2021.0901.0127

Keywords:

Exports, Real Effective Exchange Rate, Unemployment, Gross Fixed Capital Formation

Abstract

The major purpose of this study is to determine the long-run and short-run determinants of the trade deficit in the United Kingdom (UK). The autoregressive distributive lagged (ARDL) approach has been employed for estimation purposes in this study. The study finds that there is negative and significant relationship exists between the real effective exchange rate (REER) and the export to import ratio in the long run. The empirical results reveal that a one percent increase in REER causes a decrease in the export to import ratio by 0.37%, while a positive relationship is observed between REER and the export to import ratio in the short run. The impact of gross fixed capital formation on the export to import ratio is statistically significant and negative in the long run as well as in the short run. The value is negative and statistically significant which validates convergence towards the equilibrium both in the case of UK exports to high-income and low-income trading partners (LITPs). The study suggests that real exchange rate and investment are major determinants for trade balance in the case of the United Kingdom and need proper attention.

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Author Biographies

Allah Ditta, Higher Education Department, Govt. of the Punjab

Assistant Professor of Economics, Govt. College Township, Lahore.

Ruqayya Ibraheem, The Islamia University of Bahawalpur, Pakistan.

Ph. D. Scholar, Department of Economics

Muahammad Ayub, Bahauddin Zakariya University, Multan, Pakistan.

Assistant Professor, School of Economics

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Published

2021-09-30

How to Cite

Ditta, A., Ibraheem, R., & Ayub, M. (2021). Analyzing the Impact of Real Effective Exchange Rate and Investment on Trade Deficit in the United Kingdom. Pakistan Journal of Humanities and Social Sciences, 9(2), 241–249. https://doi.org/10.52131/pjhss.2021.0901.0127

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