Exchange Rate Instability and Trade. The Case of Pakistan
The variations in exchange rate play a vital role in the determination of trade balance. Volatile exchange rate shatters the investor’s and trader’s confidence, and slows down the process of trade, which results in slower growth. In this paper, other market instabilities—such as GDP growth instability in imports equation and agriculture and manufacturing instability in exports equation—have been used with exchange rate instability, and GARCH variance is used to measure it. It is found that the impact of exchange rate instability on exports is positive but insignificant, while the impact on imports is negative and significant.
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