Trade Openness and Real Exchange Rate: Some Evidence from Pakistan

Zakaria, Muhammad
Ghauri, Ahmed Bilal
Publication date: 
JEL codes: 
C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models, F41 - Open Economy Macroeconomics.
The paper studies the impact of trade openness on real exchange rate in Pakistan using quarterly data for the period 1972 to 2010. The study reveals a significant positive effect of trade openness on real exchange rate. Floating exchange rate system also depreciates the real exchange rate significantly.The results are robust to alternative trade openness measure and different model specifications. The results also highlight the role of other variables in determining the real exchange rate. Government consumptions and foreign direct investment significantly positively affect real exchange rate; while terms of trade, capital inflows, and capital accumulations have significant negative impacts on real exchange rate.
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