The Causality between Gross Fixed Capital Formation, Trade Deficit, Exchange Rate, and the Economic Growth of Pakistan

The research paper studies the causal link between gross domestic product, gross fixed-capital formations, exchange rate, and trade deficits in Pakistan from 1986 to 2013 with time serial data. ADF and Phillip Perron tests are recycled for stationary and at the first difference, each variable is unified. According to the Johansen Co-integration test, the presence of longer-term Co-integration among variables is displayed, and the Error Correction model expresses that 49.27 % of short-term uncertainty is adjusted in long-term equilibrium. Moreover, the Granger causality test presented causality among the variables. While the conclusion showed that such variables have unidirectional causation. Keywords: Trade Deficit, Exchange Rate, Gross Fixed Capital Formation, Gross Domestic Product, ADF, Phillip Perron, Johansen Co-integration, Error Correction model, & Granger Causality test.