Estimating Long-run Trade Elasticities in Pakistan: A Cointegration Approach
In: The Pakistan development review: PDR, Band 43, Heft 4II, S. 757-770
The effects of devaluation or depreciation on the trade
balance of a country are usually examined by the Marshall-Lerner [ML]
condition, which states that if the sum of the absolute values of
imports and exports demand price elasticities is greater than one,
devaluation is expected to improve the trade balance of a country. Some
Structural Adjustment Reforms were started with the help of IMF and
World Bank in 1982-83 with the objective of improving the efficiency of
the economy by increasing the role of the private sector. The reforms
included the delinking of the Rupee from US dollar in January 1982,
price deregulation of a large number of products, denationalisation of
industry, imports liberalisation and export expansion [Khan (1994)]. The
successive governments have taken a number of steps to pursue an
extensive liberalisation of the trade regime in addition to taking a
number of export measures. Exchange and payment reforms were also
implemented [Pakistan (1991-92)].