The Impact of Exports, FDI and External Debt on Exchange Rate Volatility in Pakistan

Zameer, Sadaf; Siddiqi, Muhammad Wasif
November 2010
Interdisciplinary Journal of Contemporary Research in Business;Nov2010, Vol. 2 Issue 7, p337
Academic Journal
This study endeavors to examine the impact of Exports, Foreign Direct Investment and External Debt on the Volatility of Exchange Rate in Pakistan over the period 1960-2008. For the purpose of investigating long run and short run relationship the study uses autoregressive distributed lag model (ARDL), a cointegration test and ECM error correction methodology respectively. Results indicate the existence of the cointegration relationship in the empirical model. The estimated coefficients show that one percent increase or decrease in exports will lead to 2.0043 percent increase or decrease in exchange rate volatility. A one percent increase in FDI will lead to approximately 0.6 percent decrease in exchange rate volatility. A one percent increase in external debt will lead to approximately 1.41 percent decrease in exchange rate volatility.


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