Slow Rockets and Fast Feathers or the Link between Exchange Rates and Exports: A Case Study for Pakistan

Martín Brun, Juan Pedro Gambetta and Gonzalo Varela

No 9353, Policy Research Working Paper Series from The World Bank

Abstract: Export responses to real exchange rate (RER) depreciations in Pakistan are lower than those to appreciations. This paper empirically documents this asymmetric response using macro-level data. It then relies on a disaggregated export product–level data set for 2003-17 to test, within a panel fixed-effects framework, three hypotheses explaining the low export response to depreciations, focusing on information costs, supply constraints, and pricing to market. The analysis finds that (i) exports of differentiated products grow more slowly when the RER depreciates than they fall when it appreciates; (ii) exports from sectors with relatively greater supply constraints -- in particular related to accessing finance- respond less to depreciations than to appreciations; and (iii) dollar prices for Pakistani exports tend to fall after nominal depreciations of the Pakistani rupee, in violation of the Dominant Currency Paradigm and consistent with pricing-to-market behavior, further accounting for the low response of exports to RER depreciations.

Keywords: Financial Sector Policy; International Trade and Trade Rules; Access to Finance; Finance and Development; Financial Economics; Labor Markets (search for similar items in EconPapers)
Date: 2020-08-10
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (1)

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