A macroeconometric model for trade policy evaluation: evidence from Pakistan

Purpose The purpose of the study is to develop a macroeconometric model for evaluation of trade policies and forecasting of trade performance of Pakistan with different regions or group of countries. Design/methodology/approach These regions or group of countries are Organization of Islamic Cooperation, Organization of Economic Cooperation and Development, Association of Southeast Asian Nations, South Asian Association for Regional Cooperation and the rest of the world. A macroeconometric model containing 15 behavioral equations and eight identities. Findings Cointegration results suggest that there exist long-run relationships among variables of all behavioral equations. Additionally, results of different policy shocks based on unit value of export (export price), unit value of import (import price), exchange rate, foreign direct investment, interest rate and foreign exchange reserve suggest that the model is useful for economic planning to sustain growth performance of Pakistan. Originality/value In this study, the authors develop for the first time ever a macroeconometric model for the evaluation and forecasting of regional trade policy and performance for Pakistan.