Impact of exchange rate volatility on sectoral exports of Pakistan: an ARDL investigation

Purpose - The purpose of this paper is to explore the impact of exchange rate volatility at sectoral level on the exports trade of Pakistan. All the sectors involved in the export trade (proposed by the State Bank of Pakistan, by commodity), were used to study this relationship at a more minute level. Design/methodology/approach - Quarterly data regarding research were collected over the period 2003 to 2010 from databases of State Bank of Pakistan and International Monetary Fund financial statistics. The bound testing approach proposed by Pesaran et al., was used to study the relationship between sectoral export and exchange rate volatility, while augmented Dickey Fuller (ADF) and Phillips Perron tests were used to test the unit root of series and GARCH, proposed by Bollerslev, was used to study exchange rate volatility. Findings - The results 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 were not statistically significant. Practical implications - The paper's findings can be used to form such policies which result in a stabilized and competitive exchange rate, so that Pakistan's exports can be increased. Originality/value - Previous studies have been conducted on aggregated data set for exports in the Pakistani context, which hinders pertinent information; however this information is possible by studying disaggregated data. The paper fills a research gap by taking sectoral level data, to divulge the behavior of individual sectors against exchange rate volatility.