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Trade Openness and Real Exchange Rate: Some Evidence from Pakistan

  • Muhammad Zakaria

    ()

    (Pakistan Institute of Development Economics, Islamabad, Pakistan)

  • Ahmed Bilal Ghauri

    (Pakistan Institute of Development Economics, Islamabad, Pakistan)

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    The paper studies the impact of trade openness on real exchange rate in Pakistan using quarterly data for the period 1972 to 2010. The study reveals a significant positive effect of trade openness on real exchange rate. Floating exchange rate system also depreciates the real exchange rate significantly. The results are robust to alternative trade openness measure and different model specifications. The results also highlight the role of other variables in determining the real exchange rate. Government consumptions and foreign direct investment significantly positively affect real exchange rate; while terms of trade, capital inflows, and capital accumulations have significant negative impacts on real exchange rate.

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    File URL: http://www.rejournal.eu/sites/rejournal.versatech.ro/files/articole/2011-03-01/2107/zakaria-je39.pdf
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    Article provided by Department of International Business and Economics from the Academy of Economic Studies Bucharest in its journal Romanian Economic Journal.

    Volume (Year): 14 (2011)
    Issue (Month): 39 (March)
    Pages: 201-229

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    Handle: RePEc:rej:journl:v:14:y:2011:i:39:p:201-229
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    1. Sebastion Edwards, 1988. "Real and Monetary Determinants of Real Exchange Rate Behavior: Theory and Evidence from Developing Countries," UCLA Economics Working Papers 506, UCLA Department of Economics.
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