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The Long-run and Short-run Impact of Exchange Rate Devaluation on Pakistan's Trade Performance

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  • Zehra Aftab

    (Social Policy Development Centre, Karachi.)

  • Aurangzeb

    (Social Policy Development Centre, Karachi.)

Abstract

In estimating trade elasticities for Pakistan, most previous researchers have employed non-stationary data and OLS or 2SLS techniques. In this paper we use Johansen’s cointegration methodology to re-investigate the long-run trade elasticities and existence of the Marshall-Lerner condition. Using quarterly data, the trade performance with Pakistan’s ten major trading partners is empirically tested. Moreover, we also investigate the short-run exchange rate dynamics by constructing an error-corrrection model to trace the j-curve.

Suggested Citation

  • Zehra Aftab & Aurangzeb, 2002. "The Long-run and Short-run Impact of Exchange Rate Devaluation on Pakistan's Trade Performance," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 41(3), pages 277-286.
    • Handle: RePEc:pid:journl:v:41:y:2002:i:3:p:277-286
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    References listed on IDEAS

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    6. 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.
    7. Bahmani-Oskooee, Mohsen & Malixi, Margaret, 1992. "More evidence on the J curve from LDCs," Journal of Policy Modeling, Elsevier, vol. 14(5), pages 641-653, October.
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    Cited by:

    1. Jesus Felipe & J. S. L. McCombie & Kaukab Naqvi, 2010. "Is Pakistan's Growth Rate Balance-of-Payments Constrained? Policies and Implications for Development and Growth," Oxford Development Studies, Taylor & Francis Journals, vol. 38(4), pages 477-496.
    2. Nabeela KOUSAR* & Muhammad Rizwan YASEEN** & Imran QAISER***, 2017. "THE S-CURVES DYNAMICS OF TRADE: The Case Study of Pakistan," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 27(1), pages 121-138.
    3. Zehra Aftab & Sajawal Khan, 2008. "Bilateral J-Curves between Pakistan and Her Trading Partners," Trade Working Papers 22179, East Asian Bureau of Economic Research.
    4. Peguero, Anadel G. & Cruz-Rodríguez, Alexis, 2016. "Condición Marshall-Lerner y el efecto Curva J: Evidencias para la República Dominicana [Marshall-Lerner Condition and J-Curve Effect: Evidence for the Dominican Republic]," MPRA Paper 71535, University Library of Munich, Germany.
    5. Talat Afza & Khalid Ahmed & Muhammad Shahbaz, 2016. "Does Harberger–Laursen–Metzler (HLM) Exist in Pakistan? Cointegration, Causality and Forecast Error Variance Decomposition Tests," Global Business Review, International Management Institute, vol. 17(4), pages 759-778, August.
    6. Bilal Raza, 2021. "Balance of Payments Constrained Growth in Pakistan - Implications for Development Policy," SBP Working Paper Series 107, State Bank of Pakistan, Research Department.
    7. Matthew McCartney, 2015. "The Missing Economic Magic: The Failure of Trade Liberalization and Exchange Rate Devaluation in Pakistan, 1980–2012," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 20(Special E), pages 59-86, September.
    8. Mohsen Bahmani-Oskooee & Javed Iqbal & Muhammad Muzammil, 2017. "Pakistan-EU Commodity Trade: Is there Evidence of J-Curve Effect?," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 17(2), pages 1-8, June.
    9. Aamir Khan & Aneel Salman & Muhammad Arshad Khan, 2019. "Is Exchange Rate Effect Trade Balance in Pakistan? Evidence Based on J- Curve," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 8(2), pages 60-79, December.
    10. Shaghil Ahmed & Iffat Ara & Kalim Hyder, 2006. "How External Shocks and Exchange Rate Depreciations Affect Pakistan? Implications for Choice of an Exchange Rate Regime," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 2, pages 61-68.
    11. Atif Kafayat, 2014. "Effects of Exchange Rate Instability on Imports and Exports of Pakistan," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 2(2), pages 205-215, April.
    12. Usama Ehsan Khan, Muhammad Umar Zahid, Afshan Uroos, Aamir Hussain Siddiqui, 2018. "Impact of Devaluation on Balance of Trade: A Context of Neighboring Countries," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 3(2), pages 68-77, October.
    13. Nkenchor Neville Igue & Toyin Segun Ogunleye, 2014. "Impact of Real Exchange Rate on Trade Balance in Nigeria," African Development Review, African Development Bank, vol. 26(2), pages 347-358, June.
    14. A. Aurangzeb & Thanasis Stengos & Asif U. Mohammad, 2005. "Short-Run and Long-Run Effects of Exchange Rate Volatility on the Volume of Exports: A Case Study for Pakistan," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 4(3), pages 209-222, December.
    15. Hafsa Hina, 2020. "Correction of Trade Deficit through Depreciation - A Misdirected Policy: An Empirical Evidence from Pakistan," PIDE-Working Papers 2020:24, Pakistan Institute of Development Economics.
    16. Muhammad Arshad Khan & Atif Ali Jaffri & Faisal Abbas & Azad Haider, 2017. "Does Trade Liberalization Improve Trade Balance in Pakistan?," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 18(2), pages 158-183, September.
    17. Shahbaz, Muhammad & Jalil, Abdul & Islam, Faridul, 2010. "Real Exchange Rate Changes and Trade Balance in Pakistan: A Revisit," MPRA Paper 27631, University Library of Munich, Germany.
    18. Mohsen Bahmani-Oskooee & Ahmed Usman & Sana Ullah, 2020. "Asymmetric J-curve in the commodity trade between Pakistan and United States: evidence from 41 industries," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 10(2), pages 163-188, June.
    19. Chaudhry, Azam & Bukhari, Syed Kalim Hyder, 2013. "A structural VAR analysis of the impact of macroeconomic shocks on Pakistan's textile exports," Economic Modelling, Elsevier, vol. 32(C), pages 302-315.

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