The asymmetric effects of exchange rate volatility on UK–Pakistan trade flows: New evidence from nonlinear ARDL approach

Abstract

Using the nonlinear autoregressive distributed lag (NARDL) method, the current study explores the effects of exchange rate variations on commodities trade between Pakistan and the United Kingdom. The current study contends that the limiting assumption of symmetry between the exchange rate and the trade flows may have hampered the empirical results, despite the fact that earlier studies primarily used the symmetric cointegration approach. From 1980 to 2020, the study examines the symmetric and asymmetries effects of exchange rate variations on 35 sectors in Pakistan that import from the UK and 35 industries that export to the UK. The findings suggest that there is evidence of a considerable influence of asymmetric exchange rate variations on trade flows in both the short and long term in over half of the importing and exporting industries that participate in trade with the UK. By highlighting the significance of taking into account asymmetry in the analysis and exposing the sector-specific effects of exchange rate changes on trade flows, the study adds to the body of current work.

KEYWORDS:

• Asymmetric effects
• exchange rate volatility
• commodity trade
• Pakistan
• UK
• nonlinear ARDL

JEL Classifications:

• F19
• F1
• F

Acknowledgements

We thank the respected editor for considering our article.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Consent to participate

All the authors have read and approved the final version of manuscript.

Ethical approval

This manuscript is solely submitted to the esteemed journal. Further, this article is not under consideration for publication elsewhere.

Data availability statement

Available on request.