Does Exchange Rate Uncertainty Effects Exports? A Disaggregated Study of Pakistan Economy

This study has been conducted to find out the effect of exchange rate uncertainty on the export volume of Pakistan to its major trading partner countries. Volatility in the nominal exchange rate of Pakistan has been estimated through Generalized Autoregressive Conditional Hetroscedastic (GARCH) process. The findings showed that exchange rate uncertainty has negative significant impact on the volume of exports of Pakistan with all considered trading partner countries. In case of Hong Kong, Kuwait and Malaysia relative prices have negative significant effect on the volume of exports, while for the rest, trading partner countries the relationship is found positive and significant. It is further documented that political instability has significant negative impact on the volume of exports in almost all the trading partner countries. Exchange rate volatility curtails the volume of exports, so appropriate policies are required to be adopted, which will stabilize the exchange rate.