An Empirical Analysis of Imports, Exports, Exchange Rate and Inflation as Determinants of Economic Growth in Afghanistan

Abstract

This study empirically examines the impact of inflation, exchange rate movements, imports, and exports on economic growth in Afghanistan using annual time-series data from 2003 to 2023. Economic growth is proxied by real Gross Domestic Product (GDP), while inflation, exchange rate, exports, and imports are employed as explanatory variables. The study applies the Autoregressive Distributed Lag (ARDL) framework, which is appropriate given the mixed order of integration among the variables. The ARDL bounds test indicates the absence of a statistically significant long-run equilibrium relationship between GDP and the selected variables. This suggests that Afghanistan’s economic growth was not driven by stable long-term fundamentals, reflecting structural fragility, political instability, and dependence on external support. Consequently, the analysis focuses on short-run dynamics. Short-run estimates reveal that economic growth exhibits strong dependence on its own past values. Exports do not exert an immediate effect on GDP; however, lagged exports contribute positively to growth, indicating delayed export-led benefits. Imports have an insignificant impact on economic growth, suggesting that import patterns did not enhance productive capacity. Exchange rate fluctuations exert a significant short-run influence on GDP, while inflation has a negative but statistically insignificant effect. The study concludes that Afghanistan’s economic growth has been shaped primarily by short-term dynamics rather than long-term structural factors. Policy recommendations emphasize exchange rate stabilization, strengthening trade infrastructure, supporting domestic producers, expanding export markets, and promoting capital goods imports to enhance productive capacity.