Impact of Tariff, Exchange Rate and Investment Efficiency on Economic Growth: Evidence from Pakistan

Abstract

The study explores the implications of tariff, exchange rate dynamics, and investment efficiency on Pakistan's economic growth using secondary data from 1980 to 2020. Results suggest that increasing REER and ICOR positively influences long-term GDP, aligning with economic theory. This underscores the importance of investing in capital-intensive businesses while maintaining a competitive exchange rate. While introducing tariff as a variable in the model, the results indicate that real effective exchange rate, incremental capital output ratio and tariff have very less effect on GDP in short run. Long-term trends reveal that REER and ICOR continue to positively affect GDP, while tariff has a negative impact. The study highlights that protectionist trade policies, such as increased tariffs, may hinder long-term economic progress. Policymakers are encouraged to consider strategies promoting trade liberalization to enhance Pakistan's economic growth. JEL Codes: E0, E2,F3, H2