The Impacts of Exchange Rate Volatility on Commodity Wise Trade Flows between Pakistan and Its Major Trading Partner China
- August 29, 2018
- Posted by: RSIS
- Category: Economics
International Journal of Research and Innovation in Social Science (IJRISS) | Volume II, Issue VIII, August 2018 | ISSN 2454–6186
Muhammad Zubair Chishti1 , Khaliq ul Rehman2, Dr. Javed Iqbal3, Farrukh Mahmood4
1Quaid-i-Azam University, Islamabad, Pakistan
2Quaid-i-Azam University, Islamabad, Pakistan
3Assistant Professor School of Economics, Quaid-i-Azam University, Islamabad, Pakistan
4Pakistan Institute of Development Economics, Islamabad, Pakistan
Abstract: The presented study explores the impacts of volatile exchange rate volatility on commodity wise trade flows between Pakistan and its major trading partner China, using the data from 1981 to 2015. Further, we use the ARDL approach to show the long run and short run empirical results of 38 exporting and 44 importing industries. We conclude that 79% of industries are affected in the short run due to the volatility. While, in the long run, 20 exporting industries and 29 importing industries respond to the volatility. And the unique findings of our study, due to employing disaggregated data, are that the two large exporting industries coded as 651 (57% share) and 652 (13% share) get benefits and get no benefit respectively in the long run. However, in theimports side, the large industry coded as 724 (10% share) gets loss due to the volatility.
Keywords: Volatile exchange rate, Commodity wise data, ARDL Approach, Pakistan and China.
I. INTRODUCTION
There is a lot of literature, as evidenced by researchers, to assess the impact of the volatile exchange rate on the trade flows. This literature reveals positive, negative and no impact of volatility on the exports and imports. Further, exchange rate variability, considering its negative impact, brings uncertainty in prices by which reluctant to take risk investors to avoid to disburse investment. This precariousness in prices, as a response, creates a downfall in the production markets. In consequence, exports function of that economy becomes the target of recession due to less production. On the other hand, uncertainty in prices, due to the volatility, increases the ratio of saving which boosts the investment. This process improves the production in markets. As a result, exports of that economy increase.
