Devaluation and the Balance of Trade: A Policy Analysis for Pakistan

Shahrukh R. Khan and Safiya Aftab ()
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Shahrukh R. Khan: Sustainable Development Policy Institute, Postal: 20, Hill Road, F-6/3, Islamabad Pakistan http://www.sdpi.org/ ,, http://www.sdpi.org/
Safiya Aftab: Srategic & Economic Policy Research Put. Ltd, Postal: Islamabad, Pakistan, http://www.sepr.com.pk

Economia Internazionale / International Economics, 1996, vol. 49, issue 2, 247-260

Abstract: Devaluation is frequently recommended as part of structural adjustment programs for attaining external balance. Estimating export and import demand functions has been a conventional method of evaluating the likely effect of a devaluation on the external balance. In this paper we address an important critique of the conventional method of estimating export demand functions and make a case for using real effective exchange rates rather than relative prices in the demand functions. We also demonstrate that high income elasticities in the conventional export demand functions need not be cause for concern.

Date: 1996
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