Author
Muhammad Zain ul ISLAM* and Asma JABEEN**
Abstract
This study examines the effects of the financial development, energy transition, foreign direct investment, and the monetisation ratio on Pakistan’s current account balance, using time-series data from 1976 to 2022. To assess data stationarity, the ADF and KPSS test is applied. The VECM results identified both short and long-term causal relationships between the variables and outcomes, highlighting the presence of long-run associations. The results indicate an insignificant relationship among the financial development, energy transition, and foreign direct investment, except for the monetisation ratio, which shows a significant short-run relationship. The energy transition and the monetisation ratio have an inverse effect; in contrast, financial development and foreign direct investment have a positive long-run impact on the current account balance. This study recommends structural change initiatives to enhance financial inclusion, maintain an investment-friendly environment, emphasising readily available, low-cost methods for the energy transition, and accommodating monetary policy to curb unfavourable fluctuations in Pakistan’s current account balance.
