Exchange Rate Volatility and Sectoral Trade: Evidence from Pakistan

Abstract

The study focused on the influence of exchange rate volatility (ERV) on imports and exports of various sectors and used annual observations ranging from 1982-2023. The study used data of GDPw, Real effective exchange rate (REER), different sector’s imports and exports, along with commodity group import/export collected from World Development Indicator (WDI). All sectors are preferred by their contribution to total exports and imports and are considered the major sectors of the country. The study used annual observations to capture the volatility of the exchange rate by employing ARCH/ GARCH family models, and additional association was confirmed through ARDL / OLS and Engle Granger technique. ADF and PP tests suggested the ARDL methodology for the estimation process. ERV has a negative relation with agricultural, industrial, and manufacturing sector exports, as well as agricultural and manufacturing sector imports. It only shows a positive relation with industrial imports. According to results it is highly recommended that the new international markets should be focused because it provides the more opportunities to exporters that he could export in those countries whose exchange rate has minimum variations.