Effect of Foreign Direct Investment, Trade Openness, Economic Growth, Inflation, and Exchange Rate on Trade Openness in Pakistan

This study investigates the asymmetric effects of foreign direct investment, inflation, exchange rate, and economic growth on trade openness in Pakistan. Study uses the Autoregressive Distributed Lag (ARDL) methodology and yearly time series data from 2000 to 2024. The short run results expose that foreign direct investment and economic growth exert a significant positive effect on trade openness. Suggesting that short term capital inflows and growth developments enhance trade addition. Contrariwise, exchange rate devaluation negatively affects trade openness indicating that currency fluctuations interrupt trade flows by increasing uncertainty and import prices. Inflation, however, indications an insignificant short run effect. In the long run, foreign direct investment reveals a positive impact on trade openness. Inflation again remains insignificant, reflecting limited long-run influence on trade openness. Exchange rate actions use a positive long-run effect, representing that controlled depreciation enhances export attractiveness and fosters openness. Conversely, GDP negatively influences trade openness in the long run.