Role of Monetary and Fiscal Policy in Enhancing Exports Competitiveness: Evidence from Pakistan’s Trade Sector (1980–2023)

Abstract

This study investigates the role of monetary and fiscal policies in enhancing export competitiveness within Pakistan’s trade sector over the period 1980–2023. Export performance is a critical determinant of economic growth for developing economies, where macroeconomic stability, trade facilitation, and competitive exchange rates are essential to global integration. Using annual time-series data from the State Bank of Pakistan, Pakistan Bureau of Statistics, and international sources, the study applies econometric techniques, including Augmented Dickey-Fuller (ADF) tests, Johansen co-integration, and the Autoregressive Distributed Lag (ARDL) approach, to examine long-run and short-run dynamics between export competitiveness and macroeconomic indicators such as real interest rates, exchange rates, fiscal deficits, government spending, and export subsidies. Results indicate that stable monetary policy, maintaining a competitive exchange rate, and targeted fiscal interventions significantly improve export competitiveness. Conversely, persistent fiscal imbalances and volatile interest rates undermine trade performance by raising production costs and discouraging export-oriented investments. The findings underscore the importance of a coordinated monetary-fiscal framework to foster export growth and resilience, especially amid external shocks and global trade fluctuations. Policy recommendations include maintaining macroeconomic stability, adopting inflation-targeting regimes, rationalizing subsidies, and improving institutional coordination to bolster Pakistan’s export sector.