Pakistan Institute of Development Economics

THE PAKISTAN DEVELOPMENT REVIEW 

The Impact of Exchange Rate Volatility on Demand for Pakistan’s Leather Goods Exports to China

This study examines the impact of exchange rate volatility on demand for Pakistan’s leather and leather manufacture exports to China using the annual data for the time period from 1982 to 2014. The measure of exchange rate volatility is constructed in this research work through the moving average standard deviation of the real exchange rate. The Autoregressive Distributed Lag (ARDL) model is applied for analysis of long run and short run relationship among the variables. According to the long run results the impact of exchange rate volatility on demand for Pakistan’s leather goods exports to China is found to be negative and statistically significant. As regards the short run dynamics, the coefficient of error correction term is found to be statistically significant with negative sign indicating the convergence towards the long run equilibrium. On the basis of the results obtained this study recommends that financial market in Pakistan should be developed to provide proper hedging facilities to the exporters for covering of the exchange rate risk.

Muhammad Ejaz And Tasneem Zafar

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