Third-Country Exchange Rate Volatility and Pakistan-U.S. Trade at Commodity Level

ABSTRACT

We add to the literature on the “Third-Country” effect by assessing the impact of rupee-dollar volatility on 116 U.S. industries that export to Pakistan and 53 U.S. industries that import from Pakistan. As two measures of “Third-Country” effects, we include volatility measures of rupee-yuan and dollar-yuan rates due to the increased role of China in the global economy. We find evidence of “Third-Country” effects in more than half of the industries. Among affected industries are many of the large U.S. exporting industries, but not large U.S. importing industries.

KEYWORDS:

• China
• commodity trade
• exchange rate volatility
• Pakistan
• the U.S.

Acknowledgments

Valuable comments from two anonymous referees are greatly appreciated. Any remaining errors, however, are ours.