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Openness and Inflation: A Case Study of Pakistan

Hanif, Muhammad N. and Batool, Irem (2006): Openness and Inflation: A Case Study of Pakistan. Published in: Pakistan Business Review , Vol. 7, No. 4 (2006)

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Abstract

Romer (1993) postulates a hypothesis that inflation is lower in small and open economies. In this paper we test this hypothesis for Pakistan economy using annual time series data for the period 1973-2005. We find that besides the conventional explanatory variables like real GDP growth, monetary growth, interest rate, and wheat support price, the openness variable such as growth in ‘overall trade to GDP ratio’ also has significant negative impact on the domestic price growth in Pakistan.

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