Open AccessMonetary Approach to Balance of Payments: The Evidence on Reserve Flow from Pakistan
Author(s) -
Faiz Bilquees
Publication year - 1989
Publication title -
pakistan development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.154
H-Index - 26
ISSN - 0030-9729
DOI - 10.30541/v28i3pp.195-206
Subject(s) - balance of payments , disequilibrium , economics , balance (ability) , monetary theory , macroeconomics , monetary economics , payment , international economics , developing country , current account , monetary policy , finance , exchange rate , economic growth , medicine , ophthalmology , physical medicine and rehabilitation
The monetary approach to balance-of-payments theory suggeststhat balance of payments defecits are related to disequilibrium in theinternational money market and, as such, involve a flow of internationalreserves. A cross-section study of 39 IDCs, including Pakistan,validates the MABOPs theory for the analySiS of balance of payments ofthese countries despite the absence of underlying assumptions in thesecountries. It is contended that while it may be possible to obtainsignificant'results on a cross-section basis, the individual countrydata for many of these IDes may not validate the MABOPs theory, mainlydue to the absence of underlying assumptions, due to significantlyheterogenous economic structures in many of these countries, and due tothe common prevalence of restrictive financial policies in a largenumber of LDCs. In this paper the propositions of the MABOPs theory aretested for Pakistan only, using the same model as applied to 39 LDCs ona crosssection basis. The results show that reserves movement inPakistan cannot be explained by the version of MABOPs theory.