Slow Rockets and Fast Feathers or the Link between Exchange Rates and Exports : A Case Study for Pakistan
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 fix...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/561931597063569779/Slow-Rockets-and-Fast-Feathers-or-the-Link-between-Exchange-Rates-and-Exports-A-Case-Study-for-Pakistan http://hdl.handle.net/10986/34350 |
| Summary: | 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. |
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