THE PAKISTAN DEVELOPMENT REVIEW
Export Function Estimates for the Pakistan Carpet Industry
This paper explores the behaviour of exports of ‘exotic’ carpets/rugs from Pakistan over the period from 1970-2003. These rugs are sold purely for decorative purposes mainly to the major Western economies. This sector of world trade has been neglected by economists as there is only one study of Iranian carpet trade [Karimi (2003)] which has so far only been presented as a short abstract. In this paper we review the historic background to the carpet making industry in Pakistan and look at its current conditions of production. We then go on to estimate an error correction model using conventional trade-related explanatory variables which include the volatility of exchange rates which has been increasingly a focus of such research. The results are broadly supportive of the existing aggregate and disaggregate literature for other countries. Given that the dominant rival supplier—Iran was subjected to constant and varying trade volume rationing activities by the USA, we then attempt to take this into account using measures of Iranian trade disadvantage. These results show that the problems faced by Iranian exporters have had a statistically significant positive impact on the Pakistan carpet export supply function.