Article Sidebar

Submitted
January 23, 2020
Accepted
June 23, 2020
Published
October 7, 2020
Download
PDF
Statistic
Read Counter : 2400 Download : 1049

Downloads

Download data is not yet available.

Main Article Content

Abstract

This study estimates the effects of devaluation and appreciation of real effective exchange rate (REER) on revealed comparative advantage (RCA) at Harmonized System 2-digit level of exports in Pakistan. A non-linear Autoregressive Distribute Lag (ARDL) technique is applied to test the asymmetric evidence. This study employs two models to explore the export performance. Findings/Originality: The results of model 1 estimation confirm the proof of asymmetric ARDL and concludes that devaluation has a positive effect on selected RCA’s index value and helps enhance exports of Pakistan. Meanwhile, the appreciation of REER is having an adverse impact. Model-2 estimates the effect of these selected RCA’s, REER, and world aggregated income (Yw) on the trade balance (TB) of Pakistan. The results estimate that an increase in selected RCA’s index values, world aggregated income, and REER depreciation is useful to decrease in deficit TB of Pakistan.

Keywords

Real effective exchange rate revealed comparative advantage trade balance

Article Details

License

Authors who publish with this journal agree to the following terms:

  1. Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-ShareAlike 4.0 International License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
  2. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
  3. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).

Creative Commons License

Economic Journal of Emerging Markets by Center for Economic Studies, Universitas Islam Indonesia is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

How to Cite
Siddique, M., Anwar, A., & Quddus, M. A. (2020). The impact of real effective exchange rate on revealed comparative advantage and trade balance of Pakistan. Economic Journal of Emerging Markets, 12(2), 193–207. https://doi.org/10.20885/ejem.vol12.iss2.art6
Download Citation
Endnote/Zotero/Mendeley (RIS)
BibTeX

References

  1. Ahmad, N., & Kalim, R. (2013). Changing revealed comparative advantage of textile and clothing sector of Pakistan: Pre and post quota analysis. Pakistan Journal of Commerce and Social Sciences, 7(3), 534–558.
  2. Ahmad, N., & Kalim, R. (2014). Implications of export competitiveness, and performance of textile and clothing sector of Pakistan: Pre and post quota analysis. Pakistan Journal of Commerce and Social Sciences, 8(3), 696–714.
  3. Baharumshah, A. Z. (2001). The effect of exchange rate on bilateral trade balance: New evidence from Malaysia and Thailand. Asian Economic Journal, 15(3), 291–312. https://doi.org/10.1111/1467-8381.00135
  4. Bahmani-Oskooee, M. (1991). Is there a long-run relation between the trade balance and the real effective exchange rate of LDCs? Economics Letters, 36(4), 403–407. https://doi.org/10.1016/0165-1765(91)90206-Z
  5. Bahmani-Oskooee, M. (2001). Nominal and real effective exchange rates of middle eastern countries and their trade performance. Applied Economics, 33(1), 103–111. https://doi.org/10.1080/00036840122490
  6. Bahmani-Oskooee, M., & Fariditavana, H. (2015). Nonlinear ARDL approach, asymmetric effects and the J-curve. Journal of Economic Studies, 42(3), 519–530. https://doi.org/10.1108/JES-03-2015-0042
  7. Bahmani-Oskooee, M., & Fariditavana, H. (2016). Nonlinear ARDL approach and the J-curve phenomenon. Open Economies Review, 27(1), 51–70. https://doi.org/10.1007/s11079-015-9369-5
  8. Bahmani-Oskooee, M., & Ratha, A. (2004). The J-curve: A literature review. Applied Economics, 36(13), 1377–1398. https://doi.org/10.1080/0003684042000201794
  9. Balassa, B. (1965). Trade liberalisation and “revealed” comparative advantage 1. The Manchester School, 33(2), 99–123. https://doi.org/10.1111/j.1467-9957.1965.tb00050.x
  10. Baral, K., Roy, B. C., Rahim, K. M. B., Chatterjee, H., Mondal, P., Mondal, D., … Talekar, N. S. (2006). Socio-economic parameters of pesticide use and assessment of impact of an IPM strategy for the control of eggplant fruit and shoot borer in West Bengal, India. Taipei, China: AVRDC - the World Vegetable Center.
  11. Brown, R. L., Durbin, J., & Evans, J. M. (1975). Techniques for testing the constancy of regression relationships over time. Journal of the Royal Statistical Society: Series B (Methodological), 37(2), 149–192.
  12. Chinn, M. D. (1991). Some linear and nonlinear thoughts on exchange rates. Journal of International Money and Finance, 10(2), 214–230. https://doi.org/10.1016/0261-5606(91)90036-J
  13. Chinn, M. D. (2006). A primer on real effective exchange rates: Determinants, overvaluation, trade flows and competitive devaluation. Open Economies Review, 17(1), 115–143. https://doi.org/10.1007/s11079-006-5215-0
  14. Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74(366), 76–66. https://doi.org/10.2307/2286348
  15. Duasa, J. (2007). Determinants of Malaysian trade balance: An ARDL bound testing approach. Global Economic Review, 36(1), 89–102. https://doi.org/10.1080/12265080701217405
  16. Greenaway, D., & Milner, C. (1993). Evaluating Comparative Advantage. In Trade and industrial policy in developing countries: A manual of policy analysis (pp. 181–208). New York: The Macmillan Press.
  17. Greenwood, J. (1984). Non-traded goods, the trade balance, and the balance of payments. The Canadian Journal of Economics / Revue Canadienne d’Economique, 17(4), 806–823. https://doi.org/10.2307/135075
  18. Halicioglu, F. (2008). The J-curve dynamics of Turkey: an application of ARDL model. Applied Economics, 40(18), 2423–2429. https://doi.org/10.1080/00036840600949496
  19. Henry, C., & Longmore, R. (2003). Current account dynamics and the real effective exchange rate: The Jamaican experience. Jamaica.
  20. Hoen, A., & Oosterhaven, J. (2006). On the measurement of comparative advantage. The Annals of Regional Science, 40(3), 677–691. https://doi.org/10.1007/s00168-006-0076-4
  21. Holmes, M. J., & Panagiotidis, T. (2009). Cointegration and asymmetric adjustment: Some new evidence concerning the behavior of the U.S. current account. The B.E. Journal of Macroeconomics, 9(1), 1–25. https://doi.org/10.2202/1935-1690.1665
  22. Hussain, M., & Bashir, U. (2013). Dynamics of trade balance and the J-curve phenomenon: Evidence from Pakistan. The Journal of Commerce, 5(2), 16–31.
  23. Kale, P. (2001). Turkey’s trade balance in the short and the long run: Error correction modeling and cointegration. The International Trade Journal, 15(1), 27–56. https://doi.org/10.1080/088539001300005440
  24. Kamin, S. B., & Rogers, J. H. (1997). Output and the real exchange rate in developing countries: An application to Mexico (International Finance Discussion Papers No. 580). SSRN Electronic Journal. https://doi.org/10.2139/ssrn.774
  25. Karamelikli, H. (2016). Linear and nonlinear dynamics of the Turkish trade balance. International Journal of Economics and Finance, 8(2), 231–245. https://doi.org/10.5539/ijef.v8n2p70
  26. Kemal, M. A., & Qadir, U. (2005). Real exchange rate, exports, and imports movements: A trivariate analysis. The Pakistan Development Review, 44(2), 177–195.
  27. Laursen, K. (1998). Revealed Comparative Advantage and the Alternatives as Measures of International Specialisation.
  28. Liesner, H. H. (1958). The European common market and british industry. The Economic Journal, 68(270), 302–316. https://doi.org/10.2307/2227597
  29. Lin, M. L., & Fu, T. W. (2015). Non-linear effect of exchange rates on trade balance: A recommendation for emerging countries’ exchange rate policy. International Journal of Economics and Financial Research, 1(6), 90–96.
  30. Magee, S. P. (1973). Currency contracts, pass-through, and devaluation. Brookings Papers on Economic Activity, 4(1), 303–325.
  31. Mahdavi, S. (2000). Do German, Japanese, and U.S. export prices asymmetrically respond to exchange rate changes? Evidence from Aggregate Data. Contemporary Economic Policy, 18(1), 70–81. https://doi.org/10.1111/j.1465-7287.2000.tb00007.x
  32. Mahdavi, Saeid, & Sohrabian, A. (1993). The exchange value of the dollar and the U.S. trade balance: An empirical investigation based on cointegradon and Granger causality tests. The Quarterly Review of Economics and Finance, 33(4), 343–358. https://doi.org/10.1016/1062-9769(93)90003-3
  33. Moffett, M. H. (1989). The J-curve revisited: An empirical examination for the United States. Journal of International Money and Finance, 8(3), 425–444. https://doi.org/10.1016/0261-5606(89)90007-7
  34. Mohammad, S. D., & Hussain, A. (2010). The role of exchange rate on balance of trade: Empirical from Pakistan. European Journal of Social Sciences, 14(1), 140–150.
  35. Onafowora, O. (2003). Exchange rate and trade balance in east asia: is there a J-curve? Economics Bulletin, 5(18), 1–13.
  36. Pesaran, H. H., & Shin, Y. (1998). Generalized impulse response analysis in linear multivariate models. Economics Letters, 58(1), 17–29. https://doi.org/10.1016/S0165-1765(97)00214-0
  37. Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616
  38. Proudman, J., & Redding, S. (2000). Evolving patterns of international trade. Review of International Economics, 8(3), 373–396. https://doi.org/10.1111/1467-9396.00229
  39. Rahman, M., & Mustafa, M. (1996). The dancing of the real exchange rate of US dollar and the US real trade balance. Applied Economics Letters, 3(12), 807–808. https://doi.org/10.1080/135048596355646
  40. Rahman, M., Mustafa, M., & Burckel, D. V. (1997). Dynamics of the yen-dollar real exchange rate and the US-Japan real trade balance. Applied Economics, 29(5), 661–664. https://doi.org/10.1080/000368497326868
  41. Rose, A. K., & Yellen, J. L. (1989). Is there a J-curve? Journal of Monetary Economics, 24(1), 53–68. https://doi.org/10.1016/0304-3932(89)90016-0
  42. Shahid, I., & Afzal, M. V. (2013). Impact of currency devaluation on the exports: A comparative study on Pakistan, Bangladesh and India. A Research Journal of Commerce, Economics and Social Science, 7(1), 20–31.
  43. Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In W. Horrace & R. Sickles (Eds.), The Festschrift in Honor of Peter Schmidt (pp. 281–314). Springer. https://doi.org/10.1007/978-1-4899-8008-3__9
  44. Smith, S. P. (1976). Pay differentials between federal government and private sector workers. Industrial and Labor Relations Review, 31(3), 179–197.
  45. Vollrath, T. (1991). A theoretical evaluation of alternative trade intensity measures of revealed comparative advantage. Review of World Economics (Weltwirtschaftliches Archiv), 127(2), 265–280. https://doi.org/10.1007/BF02707986
  46. Waliullah, Kakar, M., Kakar, R., & Khan, W. (2010). The determinants of Pakistan’s trade balance: An ARDL cointegration approach. The Lahore Journal of Economics, 15(1), 1–26. https://doi.org/10.35536/lje.2010.v15.i1.a1
No Related Submission Found