This study utilizes interim multipliers analysis based on a VAR-X model to investigate the impacts of changes in the world’s crude oil prices on output growth rates, inflation rates, real exchange rates, and real interest rates in Pakistan. The study finds that following oil price inflation, the output growth rate initially increases but then declines in the medium to long run. The effects of oil price deflation on output growth are the opposite, though smaller in magnitude. Oil price inflation is also found to cause a moderate increase in the overall inflation rate, while oil price deflation reduces the inflation rate by a smaller margin. The resilience of the economy to oil price changes is attributed to the low share of oil in production costs, subsidized oil prices by Middle Eastern countries, remittance inflows from workers in the Gulf States, and the managed exchange rate regime. The study recommends the continuation of a conservative monetary policy, the development of inter-provincial political consensus on major hydro projects, and the ensuring of the credibility of fiscal measures aimed at the solarization of the economy, focusing more on long-term considerations rather than short-term budgetary compulsions.
KEYWORDS: Oil Price, Output, Inflation, Standard-VAR, Interim-Multiplier.
JEL: C32, E31, E43, Q31, Q43.

The purpose of this paper is to determine whether the information content in the consumer confidence index explains demand in Pakistan, beyond economic fundamentals. We use a wide range of models, starting from ordinary least squares to linear regression models that incorporate common factors driven by principal components, as well as advanced machine learning techniques, including penalized regression methods and neural networks. We apply both fixed and expanding window rolling forecasts to test this phenomenon and present our results using three forecast accuracy measures. Overall, our findings demonstrate that, for each technique considered, the model that includes the consumer confidence information set outperforms the model based solely on economic fundamentals. This indicates that the information content of consumer confidence enhances the explanation of demand-side indicators in Pakistan. This paper directly informs policymakers in developing countries generally, and in Pakistan specifically, that the consumer confidence index offers insights into the expectations of economic agents and should be integrated into analyses for improved policy decisions.
KEYWORDS: Consumer Confidence; Forecast, Machine Learning, OLS; Pakistan.
JEL: C22, C80, E00.

The exchange rate is an important tool for enhancing exports in emerging economies. To quantify the role of the exchange rate in determining trade in Pakistan, this paper presents estimates of the elasticities of relative prices, demand, and exchange rates across various categories of export and import demand for Pakistan’s economy. Our results indicate that the exports of manufactured and intermediate inputs are more responsive to changes in relative prices and exchange rates than the exports of primary goods. Furthermore, the higher magnitude of the elasticity of exports with respect to foreign demand suggests that Pakistan's exports are more responsive to foreign demand. Regarding import demand functions, our results show that the exchange rate plays an important role in impacting the demand for primary and manufactured goods imports, while domestic income drives the demand for intermediate goods imports. Overall, the exchange rate and foreign demand have played a significant role in enhancing exports in Pakistan.
KEYWORDS: Exports, imports, elasticities, exchange rate, relative prices, external demand, domestic demand, Pakistan.
JEL: F11, F14, F17, F19.

This study explores the connection between financial inclusion and inclusive growth, highlighting the pressing need for such growth in contemporary Pakistan alongside the ongoing efforts to enhance financial inclusion levels. Utilizing a time series dataset from 2004 to 2022, we investigate variables including the index of inclusive growth, the composite index of financial inclusion, FDI, budget deficit, remittances, and government effectiveness. The analysis employs the Markov regime-switching technique to address the non-linearity of the data. Findings indicate a non-linear relationship between inclusive growth and financial inclusion. Financial inclusion has a significant and positive effect on inclusive growth during low-growth periods but exhibits negative effects during high-growth periods. Government effectiveness consistently demonstrates a positive impact across both high and low-growth phases, with a more pronounced effect during low-growth periods. Remittances negatively influence growth, while FDI and budget deficit show significant positive effects during low-growth periods. Key recommendations include enhancing rural financial access and digital literacy during low-growth phases, addressing structural and regulatory inefficiencies during high-growth periods, and integrating Islamic finance into national strategies. Strengthening governance and periodically reviewing policies to align with evolving economic conditions are also vital for achieving sustained and equitable development.
KEYWORDS: Inclusive Growth, Financial Inclusion, Regime Switching.
JEL: O11, O16.

This study narrates the history of trade liberalization in Pakistan from 1972 to 2021. It outlines the history of trade reforms, which is divided into three distinct periods: the partial trade liberalization period from 1972 to 1987, the trade liberalization period from 1988 to 2004, and the post-liberalization period from 2005 to 2021. Existing studies of trade liberalization often overlook the underlying explanations, which frequently fall within the realm of history and interests. This paper addresses that gap and discusses the significance of domestic and international political economy factors leading up to trade liberalization. In Pakistan, trade liberalization did not coincide with compensatory real devaluation of the currency, as the exchange rate policy prioritized price stabilization. Consequently, domestic policy rates remained high, resulting in an overvaluation of the currency, which significantly reduced the rate of capital accumulation. The consumption-driven trade liberalization contributed to the phenomenon of premature deindustrialization. As a result, the country experienced low economic growth.
KEYWORDS: Deindustrialization, Protectionism, Tariff, Liberalization, Globalization.
JEL: C63, F31.