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A structural VAR analysis of the impact of macroeconomic shocks on Pakistan's textile exports

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  • Chaudhry, Azam
  • Bukhari, Syed Kalim Hyder

Abstract

This paper creates a structural vector autoregression (SVAR) model which looks at the macroeconomic factors that impact the export of both finished and unfinished Pakistani textiles between 1980 and 2011. The analysis is unique in two ways: first, it separates unfinished (low value-added) textile exports from finished (high value-added) textile exports; second, it separates out the impact of aggregate exchange rate changes with respect to trading ‘partners’ from aggregate exchange rate changes with respect to trading ‘competitors’. We find that unfinished, or low value-added, Pakistani textile exports were positively impacted by the aggregate consumption of trading partners while finished, or high value-added, textile exports were negatively affected by these shocks. Also, a real depreciation of the Pakistani exchange rate leads to temporary increases in unfinished textile exports but sustained increases in the level of finished textile exports. Finally, positive shocks in the textile exports of competitor countries lead to temporary decreases in both unfinished and finished Pakistani textile exports, but these falls were followed by eventual increases in the exports of both.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 32 (2013)
Issue (Month): C ()
Pages: 302-315

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Handle: RePEc:eee:ecmode:v:32:y:2013:i:c:p:302-315

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Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: Exports; Textiles; VAR; Pakistan;

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References

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  1. Mohammad Akbar & Sabahat Zareen F. Naqvi, 2000. "Export Diversification and the Structural Dynamics in the Growth Process: The Case of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 39(4), pages 573-589.
  2. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
  3. M. Aynul Hasan & Ashfaque H. Khan, 1994. "Impact of Devaluation on Pakistan's External Trade: An Econometric Approach," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 33(4), pages 1205-1215.
  4. Jim Love & Ramesh Chandra, 2004. "Testing Export-Led Growth in India, Pakistan and Sri Lanka Using a Multivariate Framework," Manchester School, University of Manchester, vol. 72(4), pages 483-496, 07.
  5. Dilip Dutta & Nasiruddin Ahmed, 2001. "Trade Liberalisation and Industrial Growth in Pakistan: A Cointegration Analysis," ASARC Working Papers 2001-01, The Australian National University, Australia South Asia Research Centre.
  6. Azam Chaudhry & Phillip Garner, 2006. "Political Competition Between Countries and Economic Growth," Review of Development Economics, Wiley Blackwell, vol. 10(4), pages 666-682, November.
  7. Sajjad Akhtar & Fauzia Malik, 2000. "Pakistan’s Trade Performance vis-à-vis Its Major Trading Partners," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 39(1), pages 37-50.
  8. Mohammad Afzal, 2006. "Causality between exports, world income and economic growth in Pakistan," International Economic Journal, Taylor & Francis Journals, vol. 20(1), pages 63-77.
  9. Christopher A. Sims, 1986. "Are forecasting models usable for policy analysis?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-16.
  10. Ricardo, David, 1821. "On the Principles of Political Economy and Taxation," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, edition 3, number ricardo1821.
  11. Azam Chaudhry & Phillip Garner, 2007. "Do Governments Suppress Growth? Institutions, Rent-Seeking, And Innovation Blocking In A Model Of Schumpeterian Growth," Economics and Politics, Wiley Blackwell, vol. 19(1), pages 35-52, 03.
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