EXCHANGE RATE VOLATILITY AND THE BEHAVIOR OF TRADE IN PAKISTAN: A COMPARATIVE ANALYSIS

  • Mukamil Shah Institute of Management Sciences Peshawar, Pakistan
  • Hanana Bangash Kohat University of Science and Technology Pakistan
  • Zohaib Ali Iqra National University Peshawar, Pakistan
Keywords: Keywords: Exchange rate volatility, Trade, GARAH & 2SLS Technique

Abstract

Trade plays an important role in enhancing societal welfare, but there are several factors that affect the trade of the country.  In this study, three sectors of Pakistan including agriculture, manufacturing, and energy sector have been analyzed. The objective was to compare the responses of three different sectors to the exchange rate volatility as well as the selected determinant of the international trade of Pakistan. For this purpose, an empirical analysis is carried out analyzing annual data covering the period 1982 to 2014. GARCH technique has been used to measure volatility in the real effective exchange rate of Pakistan. Moreover, the unit root test (ADF) has been applied to determine the order of integration of the variables. All the variables were found non-stationary at level but stationary at first difference determining integration of order 1. To compare the response of exports and imports to the exchange rate volatility and other selected determinants, simultaneous equation modeling has been used in all three sectors. Hausman’s test result shows the presence of endogeneity. To come over the problem of endogeneity in estimation, the 2SLS method was used for empirical results. This study has contributed to the existing literature through its sectorial analysis i.e., agriculture, manufacture, and energy sector. As in previous literature sector-wise study has not been done.

 

Published
2021-11-04
How to Cite
[1]
M. Shah, H. Bangash, and Z. Ali, “EXCHANGE RATE VOLATILITY AND THE BEHAVIOR OF TRADE IN PAKISTAN: A COMPARATIVE ANALYSIS”, jmr, vol. 7, no. 2, pp. 69-91, Nov. 2021.