Exchange Rate Volatility and Bilateral Cotton Exports from Pakistan: An Empirical Analysis

Abstract

This study used the generalized gravity model to examine the impact of exchange rate volatility and exchange rate regime on Pakistani cotton exports. Pakistan's bilateral data set with major cotton trading partners, such as the United States of America, the United Kingdom, Hong Kong, China and the United Arab Emirates, was used in the panel framework from 1982 to 2017. Volatility in the exchange rate is measured by moving average standard deviation. The results confirm that exchange-rate volatility does not affect Pakistan's cotton exports, while the exchange-rate regime has a significant negative impact on cotton exports. Other variables such as economic size have a significant positive effect, distance has a significant negative effect and the relative price has a significant negative effect on Pakistan's cotton exports. The government should take steps to make the export of cotton competitive.