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<p>This study explores the feasibility of forming an optimal currency area (OCA) within the ASEAN + 3 + 3 group, including Pakistan, using the extended generalized purchasing power parity (G-PPP) theory. The objective is to determine whether these countries share a common stochastic trend and could form a stable OCA, considering the impacts of the Asian Financial crisis (AFC) and the Global financial crisis (GFC), with the US, China, and Japan serving as base countries, as predicted by G-PPP theory. The analysis employs the Johansen (Econ J 3:215–49, 2000) methodology, incorporating up to two exogenous structural breaks. The results suggest the presence of 127 out of 179 long-run G-PPP relationships with Pakistan, indicating greater potential for an OCA within sub-groups of countries that include Pakistan in the ASEAN + 3 + 3 setting. Stability tests confirm the parameter stability for Pakistan’s integration with ASEANBig5 + 3 + 3 countries in the post-AFC period.</p>

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Prospects for connectivity and integration between Pakistan and ASEAN + 3 + 3 countries through the lens of optimal currency area theory

  • 期刊论文

  • 发表日期：

    2025年3月6日

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  • Jamshaid Ur Rehman,
  • Muhammad Nadeem Javaid,
  • Nisar Ahmad

摘要

This study explores the feasibility of forming an optimal currency area (OCA) within the ASEAN + 3 + 3 group, including Pakistan, using the extended generalized purchasing power parity (G-PPP) theory. The objective is to determine whether these countries share a common stochastic trend and could form a stable OCA, considering the impacts of the Asian Financial crisis (AFC) and the Global financial crisis (GFC), with the US, China, and Japan serving as base countries, as predicted by G-PPP theory. The analysis employs the Johansen (Econ J 3:215–49, 2000) methodology, incorporating up to two exogenous structural breaks. The results suggest the presence of 127 out of 179 long-run G-PPP relationships with Pakistan, indicating greater potential for an OCA within sub-groups of countries that include Pakistan in the ASEAN + 3 + 3 setting. Stability tests confirm the parameter stability for Pakistan’s integration with ASEANBig5 + 3 + 3 countries in the post-AFC period.