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Volatility of Exchange Rate and Export Growth in Pakistan: The Structure and Interdependence in Regional Markets

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Author Info
Khalid Mustafa (university of Karachi, Karachi.)
Mohammed Nishat (Institute of Business Administration, Karachi.)
Abstract

The study empirically investigates the effect of exchange rate volatility on exports growth between Pakistan and leading trade partners. The countries are selected to determine the bilateral relationship between Pakistan and the other countries under various regional economic blocks such as SAARC, ASEAN, European, and Asia-Pacific regions. Cointegration and Error Correction techniques are used to establish the empirical relationship between exchange rate volatility and exports growth, using quarterly data from 1991:3 to 2004:2. The results indicate that the volatility of exchange rate has negative and significant effects both in the long run and short run with major trade partners, namely, UK and US. A similar pattern was observed in case of Australia, Bangladesh, and Singapore, where the volume of trade with Pakistan is comparatively consistent and less volatile. The relationship between exports growth and exchange rate volatility for India and Pakistan is observed only in the long-run perspective. However, of countries like New Zealand and Malaysia, no empirical relationship is observed between export growth and exchange rate volatility.

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Publisher Info
Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

Volume (Year): 43 (2004)
Issue (Month): 4 ()
Pages: 813-828
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Handle: RePEc:pid:journl:v:43:y:2004:i:4:p:813-828

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Related research
Keywords: Export; Exchange Rate; Pakistan;

Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange

References listed on IDEAS
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  1. Peree, Eric & Steinherr, Alfred, 1989. "Exchange rate uncertainty and foreign trade," European Economic Review, Elsevier, vol. 33(6), pages 1241-1264, July. [Downloadable!] (restricted)
  2. Kenen, Peter B & Rodrik, Dani, 1986. "Measuring and Analyzing the Effects of Short-term Volatility in Real Exchange Rates," The Review of Economics and Statistics, MIT Press, vol. 68(2), pages 311-15, May. [Downloadable!] (restricted)
  3. O. Cushman, David, 1986. "Has exchange risk depressed international trade? The impact of third-country exchange risk," Journal of International Money and Finance, Elsevier, vol. 5(3), pages 361-379, September. [Downloadable!] (restricted)
  4. Cushman, David O., 1988. "U.S. bilateral trade flows and exchange risk during the floating period," Journal of International Economics, Elsevier, vol. 24(3-4), pages 317-330, May. [Downloadable!] (restricted)
  5. Koray, Faik & Lastrapes, William D, 1989. "Real Exchange Rate Volatility and U.S. Bilateral Trade: A VAR Approach," The Review of Economics and Statistics, MIT Press, vol. 71(4), pages 708-12, November. [Downloadable!] (restricted)
  6. Warner, Dennis & Kreinin, Mordechai E, 1983. "Determinants of International Trade Flows," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 96-104, February. [Downloadable!] (restricted)
  7. Bailey, Martin J. & Tavlas, George S. & Ulan, Michael, 1987. "The impact of exchange-rate volatility on export growth: Some theoretical considerations and empirical results," Journal of Policy Modeling, Elsevier, vol. 9(1), pages 225-243. [Downloadable!] (restricted)
  8. Cushman, David O., 1983. "The effects of real exchange rate risk on international trade," Journal of International Economics, Elsevier, vol. 15(1-2), pages 45-63, August. [Downloadable!] (restricted)
  9. Houthakker, Hendrik S & Magee, Stephen P, 1969. "Income and Price Elasticities in World Trade," The Review of Economics and Statistics, MIT Press, vol. 51(2), pages 111-25, May. [Downloadable!] (restricted)
  10. Chowdhury, Abdur R, 1993. "Does Exchange Rate Volatility Depress Trade Flows? Evidence from Error-Correction Models," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 700-706, November. [Downloadable!] (restricted)
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