Description

This study attempts to investigate the impact of exchange rate risk on the exports demand of Pakistan to the rest of the world. The previous studies in Pakistani context had examined this phenomenon on aggregated data which had made over generalization which are not appropriate for any specific sector, thus leading to unrevealed important information. This study is to find out the effects of exchange rate volatility on exports at sectoral level by using disaggregated data set. The results of this study show that exports are negatively influenced by exchange rate volatility and relative prices while positively affected by foreign income. This relationship holds for all sectors where bound testing revealed the existence of long run relationship although some equations results are not statistically significant. These findings can be used to form such policies which result into stabilized and competitive exchange rate, so that exports of Pakistan can be raised.