Exchange Rate and Trade: A Causality Analysis for Pakistan Economy

Qazi Muhammad Hye (), Uzma Iram and Amra Hye

The IUP Journal of Applied Economics, 2009, vol. VIII, issue 5-6, 161-173

Abstract: : This paper investigates the direction of causality between exchange rate and trade (exports and imports) for a developing country like Pakistan, utilizing the monthly time series data covering the period 1995-2006. Cointegration and causality tests were conducted to assess the link between trade and exchange rate. The results of Johansen-Juselius (JJ) cointegration tests indicate that there is one cointegrating vector between exchange rate, exports and imports. However, an important finding of this empirical research is that there is a strong and stable relationship between exports and imports, and the causality is bidirectional. This study also rejects previous findings about negative effect of exchange rate volatility on trade volume in a developing economy like Pakistan.

Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:icf:icfjae:v:08:y:2009:i:5-6:p:161-173

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