World Development, Vol. 1% No. 9, pp. 1225-1240, 1991.

Printed in Great Britain.

11305-750X/91 $3./10 + 11.00

199l Pergamon Press plc

Exchange Rate Volatility and Pakistan's Exports

to the Developed World, 1974-85
RAMESH KUMAR*

University of Waterloo, Waterloo

and
RAVINDER DHAWAN

University of Connecticut, Storrs

Summary. - - The paper attempts to estimate the impact of exchange rate uncertainty on
Pakistan's exports to the developed world for 1974-85, discovering strong evidence to suggest
that exports were adversely affected by the increased variability of its bilateral exchange rates.
Unlike much of the recent evidence on developed countries, however, it is the wlriability in
nominal rather than real exchange rates that is significant. The computations also suggest the
presence of strong third-country effects.

1. I N T R O D U C T I O N
Many analysts of international economics concur that the generalized floating of exchange
rates in operation now for at least 15 years has
engendered substantial volatility in both the
nominal and real exchange rates for developed
and developing countries. ~ What remains controversial, however, is whether this increased
variability of the exchange rates, being indicative
of the greater risk and uncertainty in international transactions, has had a negative effect
on the volume and value of international trade
flows, thereby contributing to the slowdown in
the growth of international trade observed during
the 1980s. Notwithstanding the greater degree of
agreement in the more recent empirical evidence, the e m e r g e n c e of a consensus on the issue
is impeded by the lack of an appropriate theoretical framework implying unambiguously that
trade would indeed be negatively affected, 2 the
inadequacy of the empirical measures of risk, 3
and the unavailability of sufficient, reliable data.
The problem of reliable data is especially important in understanding why most of the evidence
to date pertains to the developed countries, even
though the adverse effects of exchange rate
volatility are likely to be stronger for the international trade of developing countries.*
The objective of this paper is to add to the
relatively small stock of evidence on the issue in
the context of developing countries by analyzing
the impact of exchange rate variability on Pakis-

tan's exports to its major trading partners in the

developed world, West G e r m a n y , Japan, the
United States, and the United Kingdom for
1974-85. While Pakistan's exports to these four
countries cover no more than half of its total
exports, they account for most of its exports to
the developed world. The unavailability of sufficient data on exchange rate fluctuations vis-a-vis
the other major trading partners (e.g., Kuwait)
has limited the scope of the study to only a
portion of Pakistan's exports.
In the next section, we review briefly the
methodology and the existing evidence on the
effects of exchange rate variation on trade flows.
An estimation exercise is presented and discussed in Section 3. We conclude the study by
offering a summary of our findings and discussing
their relation to the currenf evidence on the
issue.

2. M E T H O D O L O G Y A N D C U R R E N T
EVIDENCE
H o o p e r and Kohlhagen (1978) is the first study
:~'An earlier version of tile paper was presented at the
Quebec meetings of the Canadian Economic Association in June 1989. While the paper does report joint
research, the first author ahmc is responsible for the
present version and, therefore, for the errors that
remain. Computational assistance of Carlos Leitc and
the extremely helpful comments of two anonymous
referees are gratefully acknowledged.

1225

1226

WORLD DEVELOPMENT

to analyze systematically the effects of exchange

rate uncertainty on trade flows, and the methodology proposed by them, in original or modified
forms, is often used as the basis of empirical
investigations. Borrowing from the theory of the
firm under risk, Hooper and Kohlhagen model
the behavior of exporters and importers operating under exchange rate risk, and conclude that if
traders are generally risk averse, an increase in
exchange rate risk will unambiguously reduce the
volume of trade. The effect on prices of traded
goods, however, is uncertain and depends crucially upon how risk is shared among tile traders
(importers versus exporters). For empirical
studies, the amdysis implies a model of bilateral
trade flows wherein the volume and price of
goods traded are simultaneously determined by
measures of both the extent and nature of
exchange risk, in addition to the usual income
(output) and price variables. The HooperKohlhagen framework has been extended by
Cushman (1986) to include what has been termed
the "'third-country effects." Cushman argues that
the recognition of third countries in the analytical
framework implies that the effects of exchange
rate variability on bilateral trade flows depend
not only upon the exchange rate risk experienced
by tile country under consideration, but also
upon the correlations of exchange rate fluctuation experienced by other countries in the model.
Consequently, measures of these correlations or
cowtriances must be a part of any empirical
explanation. In summary, the existing methodology comprises an estimating equation (or a
system of equations) which superimposes on the
"traditional" explamttion of bilateral trade flows
a set of explanatory variables that purport to
measure the extent and nature of risk arising
from exchange rate variability. If the focus is on
explaining the exports of a small country in
various markets, this method is equivalent to
estimating a relationship of the type: 5
X; (t) = .;,, + (~,~ Y; (t) + .,2[PX. (t)/PDi (t)]
+ (~i3 Ei (t) + ti4 Ri (t) + ui (t)

where

X, (t) = volume of exports demanded

in country (market) i
Yi (t) = real income (output) in
country i
P X i (I) - price of exports (in supplier's
currency)
PD, (t) = domestic price
level in
country i
Ei (t) = the nominal exchange, rate
(units of supplier's currency
per unit of country Fs
currency)

R, (t) = a (a vector of) measure(s) of

exchange risk
Notwithstanding the purely econometric issucs
involved, the disagreement in tile literatt.rc.
particularly among the empirical studies, stems
primarily fron3 the nonuniformity of what ix
included in R, (t) and how it is measured.
l looper and Kohlhagen (1978) examines bilateral and multilateral trade among tile LJnited
States, the United Kingdom, (;crmany, Japan,
France and Canada for 1965 75. Measurhlg
exchange rate risk by tile standard error of
nominal exchange rate flnctuations, Itooper and
Kohlhagen discover, contrary to their theoretical
analysis, no substantial evidence of any significant impact on the voh, me of trade. The?
observe nevertheless some impact on prices
consistent with their analysis. Cushman (1983),
however, argues that by analyzing cxchangc rate
risk in real rather than nominal terms, the
t tooper-Kohlhagen finding regarding tile impact
on volnme of trade may be altered. Moreover+
tile impact on prices is much stronger in such a
framework. L:xtendmg tile t tooper-Kohlhagen
exercise to include more recent data (1965 77)
and a larger nunlber of countries onl\ strengthens ('ushman's findings.
One obvious shortcoming of these two studies
is the extremely short span of the floating exchange rate period covered by their samples.
Moreovcr, combining the two exchange rate
regimes creates the possibility of a nonhomogcnous sample. Both Warner and Kreinin (1983)
and Akhtar and l iilton (1984) awfid these
problems, the former by clearly distinguishing
between tile periods of fixed (1957:1 1970:IV)
and floating (1972:1-1980:IV) cxchangc ratcs,
and tile latter by focusing on a period (1974 Sl)
pertaining entircly to flexible exchange ratcs.
Using quarterly data, Warner and Krcinin try to
assess the effects of variations it+ tile current and
expected exchange rates on real trade flows by
estimating import and export demand functions
for 19 developed and 18 developing countries.
Warner and Krcinin's only nlethodological
advance for nlodeling purposes is to emphasize
the possible differential response by relative
prices and exchange rates, and the use of lags it+
tile latter. Even though thcrc is no definite
pattcrn m thc direction of the effect, Warner and
Kreinin observe that generalized floating has had
an inw,act on the volume of trade in that the
cstinlated coefficients change significantly from
onc period to the other+" Akhtar and llilton.
howevcr, reach more definitive conclusions.
('oncentrating only on the bilateral trade bc'twecn tile United Ntates and West (;crmanx, but

EXCHANGE RATE VOLATILITY

extending the model to include additional explanatory variables such as capacity utilization,
Akhtar and Hilton conclude that exchange rate
uncertainty, as measured by the standard deviation of effective exchange rates, has had a
significant negative impact on the import s and
exports of the two countries. Gotur (1985),
however, questions the robustness of the AkhtarHilton results. By expanding the number of
countries to include France, Japan and the
United Kingdom, and by varying somewhat the
sample period and the measures of exchange rate
risk, Gotur fails to find conclusive evidence that
exchange rate uncertainty has any significant
impact on bilateral trade flows, thereby reaffirming the similar conclusions of an earlier IMF
(1984) study on the issue.
Cushman (1986) argues that previous estimation exercises may have underestimated the
effects of exchange rate uncertainty by focusing
only on models of bilateral trade which fail to
take into account the third-country effects. In
support of his contention, Cushman analyzes the
US bilateral export flows to its six largest trading
partners, with and without third-country effects.
Clearly distinguishing between two s u b p e r i o d s - 1965-77 and 1973-83 - - Cushman discovers
individually and jointly significant third-country
risk effects in most cases, suggesting that exchange rate risk has played a role in depressing
international trade during the floating period. In
an equally careful, recent study on the extent and
effects of exchange rate uncertainty on global
imports of 11 major industrial countries, Kenen
and Rodrik (1986) reach similar conclusions.
The evidence with regard to developing countries is even more inconclusive. Although
Warner and Kreinin (1983) mention including 18
developing countries in their sample, they fail to
report any results or conclusions. The only other
generally available contributions are BahmaniOskooee (1984, 1986), Coes (1981) and Rana
(1983). Bahamani-Oskooee finds clear evidence
that changes in effective exchange rates have a
significant impact on trade flows of selected
developing countries even in periods when most
of them had pegged exchange rates. The focus of
both studies, however, is whether trade flows in
developing countries respond differently to
changes in exchange rates and relative prices.
Consequently, the implications for the effects of
exchange rate uncertainty are at best indirect]
Coes and Rana, however, analyze the issue in a
manner similar to ttooper-Kohlhagen. Using
annual data, Coes examines Brazilian exports (as
a proportion of the total value added) in nine
primary and 13 manufacturing sectors for 196574, concluding that the significant reduction in

1227

exchange rate uncertainty in the Brazilian economy during the crawling-peg period may have
contributed as much as the changes in relative
prices toward explaining the greater openness of
the economy after 1968. Rana (1983), which is
the most thorough study in the context of
developing countries, reaches essentially similar
conclusions regarding the import volumes of a
number of Southeast Asian countries, some of
which are also included in the Bahmani-Oskooee
sample.
Closely following the
HooperKohlhagen methodology but exploiting a variety
of measures of exchange risk, including some
nonparametric measures, Rana estimates the
import demand function for each country in the
sample, concluding that the increase in exchange
rate risk brought about by generalized foating
has a significant, negative impact on import
volumes.' Surprisingly, however, Rana (1983)
does not analyze export volumes in the same
manner although they are likely to be of greater
interest."
In the next section, we add to this meagre
evidence by presenting the results of our estimate
of the demand for Pakistan's exports for 1974-85.
While we attempt no methodological advances,
we hope to avoid some of the common problems
of the earlier studies by examining only one
country, by studying a period that pertains
entirely to generalized floating, by deploying
data that require no interpolation, and by considering as many measures of exchange rate risk as
the data allow us to compute, including some
third-country effects.

3. N U M E R I C A L RESULTS
All of the results presented in this section are
estimates of variants of the export demand
function specified in Section 2, using ordinary
least squares (OLS) estimation and quarterly
data for 1974-85. m We arrive at these variants
through embellishments of the basic specification. These variants may be classified in two
separate categories. Under the first category, we
broaden the scope of the specification as outlined
above by considering both linear and log-linear
forms, by allowing for lags in the explanatory
variables, particularly the relative price and
exchange rate, and by including the lagged
dependent variable to account for a possibly slow
adjustment to equilibrium. The second category
of improvements concerns the use of a wide
range of proxies for exchange rate risk, including
those reflecting third-country effects. We consider in particular: (a) the within period standard
deviation of nominal exchange rates, (b) a

1228

WORLD DEVELOPMEN'I

moving average of standard deviations in (a)

above, (c) the coefficient of variation of nominal
exchange rates, (d) measures such as (a), (b) and
(c) above in terms of real exchange rates, (e)
measures of (a), (b) and (c) above applied to
changes in nominal or real exchange rates, (f)
Gini's mean difference in nominal and real
terms, and (g) various measures relating to thirdcountry effects, for example, standard deviations
and coefficients of variation of exchange rates for
trading partners not directly under consideration,
and pairwise and joint covariances of bilateral
exchange rate fluctuations experienced vis-~'l-vis
the trading partners.
The best o u t c o m e s of the estimation exercise
are summarized in the appendix tables. While the
usual criteria - - high /~2 proper algebraic signs
and statistical significance of the estimated coefficients, as well as the absence of problemetic
levels of serial correlation and multicollinearity
have been used to select the results presented,
the scope of the selection has been b r o a d e n e d to
include our findings with regard to some explanatory variables that have been d e e m e d important
in previous studies. These variables are the
lagged d e p e n d e n t wtriable, time lags in relative
prices and exchange rates, and risk measures
based on real exchange rates. More specifically,
the first seven appendix tables summarize the
estimation of the export d e m a n d function, ignoring third-country effects. The last four pertain
entirely to the consideration of these effects.
Considering first Tables A 1 - A 7 , we note some
general features of the exercise. All attempts to
generate a reasonably satisfactory explanation of
exports to the United Kingdom have been
fruitless. While there is little serial correlation,
and hardly any multicoIlinearily in the sample,
/~-~never rises above (J.()6. M o r e o v e r , none of the
ordinarily important variables, except lagged
G N P , is statistically significant. For the remaining three countries in the sample, however, the
results are quite satisfactory m terms of the
goodness of fit and the signs and magnitudes of
the estimated coefficients, most confirming a
priori expectations. Next, of the two functional
forms, the linear is the belier specification. Not
only does it generate larger /{-~s, but the estimated coefficients are not marred by multicollinearity, which is a major problem in the case of
the log-linear specification.
As regards the important explanatory wlriablcs
other than the exchange rate risk measures,
results m Tables A1 A7 confirm the significance
of income, relative price, and the exchange rate,
and with appropriate algebraic signs. "l Our
findings with regard to some olher wlriables,
however, may be at variance with those of earlier
-

exercises. In particular, unlike Khan (1974), wc

find no support for including the lagged dependent variable in the list of explanatory wlriables
for Pakistan's exports for the period under
consideration. In Table A4, X(t 1) is not only
never significant, it does not improve/~2 for even
a single case. Its inclusion results in only a slight
increase in our measure of multicollinearity,
thereby simply confirming that it is superfluous. ~2 Given that Khan (1974) relates to the
period of fixed exchange rates, an explanation
for the different finding is not necessary. It is
possible, however, that a switch to flexible
exchange rates and thus to greater uncertainty
has elicited the rational response of accelerating
the adjustment to equilibrium. In a similar veto,
our calculations furnish little support for allowing
for lags m either the relative price or thc
cxchange rate wlriable. As is clearly shown in
Table AS, which displays the results of allowing
for simple lags up to three quarters m both the
relative price and the exchange rate, there arc
only two instances of statistical significance PXIPD(t 1) in the case of West G e r m a n y and
E ( t - 3 ) for the United States. t~ M o r e o v e r , the
reliability of these estimates is highly suspect in
view of the large increase in multicollinearity
which nullifies the statistical significance of
otherwise important explanatory wlriablcs
Y(t- 1) m the case of West G e r m a n y , and M A S D
and SD for the United States. Although the
literature lacks evidence on the issue, BahmaniO s k o o c e (1986) contends that such lags may be
important in explaining the exports of some
developing countries. The B a h m a n i - O s k o o c c
sample of seven countries, however, does not
include Pakistan and the lags for threc of thc
countries arc not statistically significant at the
c o m m o n l y deployed levels. 14 In view of the
discussion above, the linear specifications sun>
marized in Table A1 are our preferred estimates.
Table I presents the income and price elasticities
based on these estimates. It is evident that these
elasticities are well within the range observed in
other studies. ~5
We turn now to the significance of the exchange rate risk variables, the focus of this papcr.
The numbers in Tables A 1 - A 7 suggest once
again somewhat mixed results. First, there is
little evidence that exchange rate risk, measured
in real terms, has any impact at all. Tables A6
and A7 display the best outcomes of our cxercisc
in this regard. It is immediately obvious that lhc
real exchange rate risk w m a b l e is significant in
only one case
M A S D in growth terms for thc
United States. It is equally surprising, however,
that nominal exchange rate w~latility appears
important. If we limit the analysis to the pre-

EXCHANGE RATE VOLATILITY

1229

Table 1. Income and price elasticities

Income
West Germany
Japan
United States

(i)*
(ii)t
(i)
(ii)
(i)
(ii)

4.4850
4.3105
1.8515
1.8713
Y2609
3.1785

Relative price

Exchange rate

- 1.4459
- 1.33811
-1.4/124
- 1.36(/4
-1.8818
- 1.8889

1.0{198
0.9509
1.3687
1.2501
1.8000
1.9381

*(i) = Specification 1.
t(ii) = Specification 2.

ferred linear specification, we observe that the

coefficient of M A S D is negative and statistically
significant for West G e r m a n y and the United
States, regardless of whether current or oneperiod lagged G N P is used as the income
variable. Even for Japan, the coefficient of SD is
negative and reasonably large to become significant at a somewhat higher level. Findings such as
these are not, however, consistent with the more
recent evidence cited in the preceding section. In
the theoretical framework underlying such an
exercise, as first articulated by H o o p e r and
Kohlhagen (1978), there is no a priori basis for
favoring a real measure of exchange risk over a
nominal one. The choices depend upon whether
the economic calculations are assumed to be
carried out in real or nominal terms. Given the
nature of our specification, it may also depend
upon the extent of the pass-through of exchange
rate w~riations into prices. If we may assume that
Pakistani exporters are interested in a fixed price
in foreign currency, and this is not an unreasonable assumption given the nature and purpose of
most Third World exports, any increase in the
nominal exchange rate will immediately pass
through entirely to P X . With I ' D fixed, the real
exchange rate need not change at all. Consequently, the observed variability in the real
exchange rate would be lower than that in the
nominal rate, rendering it less likely to be
statistically significant. The relatively close magnitudes of the elasticities of P X / P D and E as
reported in Table 1 furnish some support for such
an explanation. In summary, however, the obserwttions above suggest that the hypothesis that
exchange rate volatility may have adversely
affected Pakistan's exports during the period
under consideration may not be rejected by the
data. 1~,
Although the calculations summarized in
Tables A 8 - A 11 would suggest that the inclusion
of the third country effects improves our exphmation of Pakistan's exports, caution must be

exercised in interpreting the evidence presented.

First, in light of the calculations discussed so far,
we utilize only the linear specification. Second,
for want of a better alternative, we use the
stepwise regression technique to choose the
important risk variables from a list that includes
pairwise and joint covariances of Pakistan's
bilateral exchange rates in addition to the standard deviation and similar measures. This technique permits us to take into consideration the
exchange rate volatility experienced by Pakistan
vis-/t-vis each of its trading partners, and the
possible intercorrelations among the bilateral
exchange rate fluctuations. Care and attention
must be exercised in interpreting both the signs
and magnitudes of the estimated coefficients, for
these depend on (a) whether the exchange rate
variations experienced by the third country (the
trading partner not directly under consideration)
are similar, (b) how risk is shared between the
importer and exporter, and (c) the extent to
which third countries are distinct alternate markets. No clear pattern emerges which indicates
the impact of these factors.
What may be more important in the context of
this paper, however, is whether any of these
effects are statistically significant. Looking first
at the results collectively, we note that the
inclusion of the third-country effects as described
above substantially improves the specification of
the export demand function. Judging from the
last two columns of the tables, which display the
best outcomes for each case, one discovers a
higher /~2 for each country, additional statistically significant coefficients, and D W statistics
and C O N D X indices that are unaffected. The
relative stability (in comparison with the results
in Table A I ) of the estimated coefficients also
suggests that the gain in explanatory power is not
entirely spurious.
For implications with regard to the impact on
export levels, we consider each country individually. Once again, it is easy to dispose of the

1230

WORLD DEVELOPMENT

United Kingdom case. While the inclusion of the

third-country effects improves the fit, an t~-~ of
0.192 is still very low. But it may be worth
remarking that the gain is entirely due to
M A S D G , clearly a third-country risk variablc.
From Tables A S - A l l , it is also quite evident
that the best results are again obtained m tile case
of the United States. Considering the best specifications, we notice that the already high Ie is
further increased. The problems of serial correhttion and multicollinearity its indicated respectively by the D W statistic and C O N D X are almost
nonexistent. The remarkable stabili(y of the price
and income coefficients in the face of thc
permutations of third-country risk variables
points to the robustness of both the specification
and estimation. In interpreting thc coefficients,
we find that increased covariance of changes in
the values of the US dollar vis-a-vis the deutsche
mark and the Japanese yen have tended to
depress Pakistan's exports to the United States.
Given that m o v e m e n t s m the value of the dolhtr
are likely to be negatively correlated with those
of the mark and the ycn, the result is consistent
with the hypothesis that both West G e r m a n y and
Japan serve as alternate markets for Pakistan.
The hypothesis receives further support from the
fact that the variables under consideration
( C G R U S and C J P U S ) have exactly the opposite
effects on exports to Japan and West Germany. 17
The inclusion of these variables also strengthens
the size and statistical significance of M A S D U S .
Similar observations also apply to the case of
Japan. Fhe relative gain m R- is even larger than
that observed for the United States. M o r e o v e r , a
number of third-country effects arc important.
Looking at the specifications with the largest/~2s,
we find that while the impact of SDJ as noted in
Table A 1 is not significantly changed, as many as
five proxies for third-country effects have statistically significant coefficients. We have already
attempted an exphnration of the positive coefficient of C J P U S . This exphtnation is further
supplemented by the positive sign of the coefficient of C V A U S . The positivc signs for C J P U K
and S D U K also carry a similar interpretation.
The sign of C V A G is negative. Parallel movement of the two currencies, which is not an
unlikely occurrence in the period under consideration, may be the explanation.
The case of West G e r m a n y is slightly different.
While there is considerable relative gain in /~2,
inclusion of third-country effects tends to diminish the significance of the bilateral risk wlriable,
M A S D G . Tile other coefficients, however, continue to be stable. The important third-country
risk vltriables are M S D U K , an increase in which
tends to depress exports to West G e r m a n y , and

J C O V which has a substantial positive effect. An

increase in J C O V implies greater concordance m
the m o v e m e n t of the wflue of the mark with tile
currencies of the other trading partners of
Pakistan considered as a group. Given that the
Pakistani rupee is likely to have depreciated
considerably against most major currencies during the period under consideration, the positive
sign of the coefficient of J C O V is understandable.

4. S U M M A R Y A N D C O N C L U S I O N S
Ill this paper, we have attempted an empirical
cxammation of the impact of exchange rate
uncertainty on Pakistan's exports to its major
trading partners in the developed world for 197485. Using monthly, and quarterly data, we have
identified and estimated for each of the trading
partners an export demand function which takes
into account a variety of measures of exchange
rate uncertainty experienced by Pakistan during
the period. The major findings of the exercise are
summarized as follows:
(a) As regards the general specification of the
wtrious export demand functions, linear rather
than the log-linear form seems to perform better
for the period under consideration. Unlike the
recent observations of B a h m a n i - O s k o o e e on the
determinants of trade flows of developing countries, lags m relative prices and/or exchange ratcs
do not appear to be important.
(b) Except for the case of thc United Kingdora, which presents severe computational difficulties, there is reasonably strong evidence to
suggest that the volume of Pakistan's exports to
the developed world may have been adversely
affected by increased variability of its bilateral
exchange rates.
(c) It is the variability m nominal rather than
real exchange rates that is statistically significant.
This finding is at variance with much of the
recent evidence on developed countries.
(d) The inclusion of third-country exchange
rate risk measures substantially improves the
explanation of exports. While the direction of the
eflects of exchange rate volatility as measured by
the variability of bilateral exchange rates becomes somewhat less certain, the calculations
strongly suggest that the third-country risk
factors are important determinants of the export
levels under consideration. Exclusion of these
factors, therefore, will give rise to biased estimates its noted earlier by Cushman.
(e) Finally, the interpretation of the estimated
third-country effects suggests that Japan and

EXCHANGE

RATE VOLATILITY

W e s t G e r m a n y act as t h e a l t e r n a t e m a r k e t s f o r
P a k i s t a n ' s e x p o r t s to t h e U n i t e d S t a t e s a n d t h e

1231

U n i t e d K i n g d o m . T h i s f i n d i n g m a y be i m p o r t a n t
for future aggregative studies.

NOTES
1. The evidence for this assertion is overwhelming.
See, for example, Brodsky, Hellciner and Sampson
(1981) and Rana (1983).
2.

De Grauwe (1988).

3.

See, e.g.. Rana (1983) and Westerfield (1977).

4. This is a manifestation of the lesser ability of the

developing countries to hedge against the risk of
exchange rate variation, owing to exchange controls,
underdeveloped or non-existent forward markets in
currencies and other mechanisms lk~r dealing with risk
in international transactions. For details of the effects
and the ability of developing countries to deal with
them, see Rana (1983).
5. The explanation deployed here is the familiar
one. See, lk)r example, Khan (1974), Warner and
Kreinin (1983), and B a h m a n i - O s k o o e e (1986). Clearly
the a s s u m e d linearity of the estimating relationship is
for expositional purposes only. No doubt the specification may be embellished by considering lags in prices,
exchange rate and the dependent variable, and by
introducing additional explantltory wiriables such as
capacity utilization.
6. These observations apply strictly to the sample of
developed countrics, for there is no reporting of the
results for the developing economics. The methodology
deployed by Kreinin and Warner, however, is different
from most other studies. Kreinin and Warner rely on
comparing estimated export d e m a n d functions for the
two exchange rate regimes rather than utilizing a
measure of exchange rate variability or uncertainty.
7. To the extent period to period changes in exchange rates are measures of variability of the rates,
B a h m a n i - O s k o o e e ' s studies are relewmt. Like Warner
and Kreinin (1983), however, the B a h m a n i - O s k o o c c
formulation does not include any other measures of
exchange rate volatility.
~.

R;`nl;`l uses the nleasure known as Gini's 111o;.111

difference. For the relevance o f this measure in the

context of exchange rate risk, see Westerfield (1977).
9. Using a somewhat different methodology due to
Riddle and Yandle (1972), Rana examines the impact
of exchange rate uncertainty on primary commodity
exports of these countries, arriving at similar conclusions. For details and the defense of the methodology.
see Rana (1983), pp. 110-175.
IlL

The appendix contains the details of the nature

and sources of data. Thc authors tire aware of the

recent criticism of the simple, single equation estinration by T h u r s b y and T h u r s b y (1984). While data
dificulties have kept us from utilizing the 2SLS procedure, the rclnarkable stability of the coefficients in
several versions suggcsts that the simultaneity bias may
not be serious.
11. While both current arid hlgged income perform
well, our calculations tend to suggest that lagged
income may he the better explanatory variable.
12. Our nreasure of multicollincarity, ( ' O N D X , is the
commonly employed ratio in percentage terms of the
largest to the smallest characteristic root of the matrix
of observations on the explanatory variables.
13. The results reported in Table A5 rehlte to only
simple lags. We experimented with polynomial distributed lags of similar lengths without much improveinen[.

14. Moreover, many of the significant lags noted by

B a h m a n i - O s k o o e e are in the fourth quarter or later.
The problem of multicollinearity prevented us from
experimenting with longer lags, The findings of W a r n c r
and Kreinin (1983) on the isstie, based on a specification not substantially different front ours, may not be
considered overwhelming evidence for the importance
of these lags even for the developed countries. See
Warner and Kreinin (1983), Table 2, p. 100.
15. See, for example, Table 1 in Marquez and
MeNoilIy (1988), O u r Table l does not, however,
specify elasticities with regard to the real exchange
rate. These may be easily calculated, by using the
transl'ormation

o)

o ~/(~

where 0 is the real exchange rate elasticity and o and

~" are respectively the relative price and nominal
exchange rate elasticities reported in Table I. For
purposes of comparison, these are: -(I.5945 and
- 0 . 5 5 5 9 for West G e r m a n y ; -0.9201) and -(L9566 for
the United States and -(I.6927 and - 0 . 6 5 1 5 lk~r Japan
in the order of the specifications reported in Table A 1.
16.

We must mention that our experimentation with

the nonparanletric measure, Gini's mean difference,

following Rana (1983) did not yield significant results
worth reporting.
17. See, for example, the sign and significance of the
corresponding coefficients in the last two columns of
Table A 6 and the first two columns of Tahle A4.

1232

WORLD

DEVELOPMENT

I~,EFEREN('ES
Akhtar, M. A., and I4. Sl'lcncc ttillon, "'Lflccls ol
exchange rate uncertainty on (icrman and I_!.S.
lrad,'" I+'edera[ Reseri'e tTa#tk o[ Non' York, ~)uatter/v R('l'/elr, Vol. 9, No. I (lt,l~4), pp. 7-15,.
B a h m a n i - O s k o o c c , M., "+'l+hc d e t e r m i n a n t s of trade
flows: The case of dcvcloping countries,- Journal o['
Development Econonlics, Vol. 20 (1986), pp. 107-123.
I ~ a h m a n i - ( ) s k o o c , M., "'()n the cllccls oI cflcclivc
exchange ralcs till trade IIo,,vs,'" Italia. Jott##la[ q /
Eco,omic.s, Vol. LXV, No. 25,(+ (19,";4), pp. 5,7 67.
Brodsky, David, (L t lcllcincr, and G. Sampson, -The
Impact of ('ul+rlll [:~xchangc Rate S\slCIll t)ll
l)vcloping Countries,'" Trade and I)cvClOl.m'#ll. ,,Dr
UN('I;41) ]?.ul'iclt', No. 3 (ItJSIt, pp. 3[ 5,-,+.
('oct,. 1).. "'The lawling peg and exchange rate
unccrlainty'" ill .I. Vv'illiainson ( [ d . ) . t:'lchallge Ral~'
I?uh'w 77l(' 77worv, I'ur[brmance amt l'roVwcls [7,"
the ('rau'lin~ Peg. (New York: St. Martin's Prcs~,.
19~1), pp. 113-13b.
('ushmali. David ( L , "'l|as cxchallgc risk depressed
inicrnational Iradc'? The iinl'~act oI lhird-countr,.
cxchallgC risk," J(HII'II(I] O[ IIIl('lllalh)lla[ /llollcY alld
f'7,ance, Vol. 5, No. 3 (It)N6), pp. 3~1-37~.
('ushmall. l):ix itl (;., "The ellcots ol Ic;il cxcllallgC ralc
risk (ill inlClllaliOllal lr;idc,'" J+~llrlla] O[ hlle##1alio#ta]
[;collo#HTc~. Vt)l. 15' (1983). pp. 45,-f~3.
Dc (h-auwc. Paul, "'Exchange I-ale \ai-iabilil~ and Ih
slowdown in gl-O'a..lh o1 hllcinalional trade.'" I M [ .
,~la/f Pfl/~'l:s. Vol. 35. No. 1 (1~)8,"i). pp. 63 S4.
(hfltlstcin. M., and Moshin S. Khan. 'lilcOlllC alld
price cflccls in Ioligil Iiadc.'" in R. W. Jones alld
P. B. Kcnl._'n (Ikls.). lhtml/~ook <~/ hm'rnammal
t(~om,.mics, Vol. II (Amstcrdanl: Elsevier Scicncc
Pul~lishcrs, 1985'), pp. 1041 11{15.
(~olur. Padm,I. "+Eflccls ol exchange ralc volalililv:
SOlllC lurlhcr evidence,'" IMl'" Staf7 P+I])UI+,~, \"ol. 32
(19S5). pp. 47> 512.
I toopcr. P.. and S. W. Kohlhagcn. "'The cllccts o l
cxcllailgC Iatc unccl-laillt~, on the pricc~, and \Oluln
o l hltcrl~atit)nal tratlc,'" .hmrmd <q Intcr,aliomd
l:<+momi<'., Vol. N (197,X), pp. 4S3 ~ l l .
Inlcrnathmal iMonclmx Fund. "+| xchangc rate xol~ltil-

itv and world i f a d o . " I M F ()ccasional Paper No. ]~

(Washington.
I)(': IMF, 19~4).
International M o n c t a r v Fund. lm'crnamma/ f+Tnamia/
5'mUslh's (~(asllin~toll. D('; I,MF. variotis yoalSl.
Kcncll, Pcicr B.. alld D. R o d t i k . "Mc~l,.tii+hl~ and
analysillg the effect', of ,,horl tcrnl vohitilitv in real
L'XL'IIalI~C raiL'S.'" /+evh'n' f;/ l;(qjllfjllli('+ fllld .~l'{fl//%llC',,
Vol.

ltl (19,<'46), pp. 311-315.

Khan+ Moshin S., +'Illlport and export dllldnd hI

developing countries." / M F 3'tail Papers, Vol. 21
(It)74). pp. 527 560.
M;lrqucz..laiin. and ('. McNcillv. "hlconl and price
chinticilics 1oi exports oI developing COtiiltliCS.'"
/~CI'/CII'Q/ t-CO#10IIII('% O#ld Stmiwics. \"o1+ LXX. No. 2
(ItJ,'4~L i~p. 306-314.
()rganization 1or Economic ('ooplilliOll alld D'~chlpillClll. ()[2"('1) ,4htin l(commm' lmlical,:~ (Paris:
()LD('+

%aliOLIS VC;iI>,).

Rana. P.. -77w mqmi l <q,~em'raliz<'d.llomm,~: <m ,+,h'

floif~ al+,'l r('s('l've tl<'~>~/~. ,M'/ch'd A.Wan ([('I'I'[O/HII7
comttric~,'" (New "lork: (far[and Publishers. 19S3).
Riddle. I)., and ('. A. "i andlc, "+A simplified illcthod
Ioi iIll{il~,/iIl~the el+loots ol cxc'lliulgc lLllC.'chatlg:. Oll
cxi',orts ot prhnary commoditic~,.'" IMI" Mall l'alwrs.
Vol. 19 (1972), pp. 559 h79.
5talc Bank ol PakiMan, Bulh>liu o/ the ,~,'lalv ITank <~/
I'aki.stan (PcikiMan: .'State Bank o l PakiMan. \ariotp,
}'cars).
Thurnl+;..lorry. and M. l h u r s b ' , + - ' t l m ~ iliabl illC
~,iniplo. ~,hlTIc CClUation spccitication~, ol itnl+Oll
tlclll~llld', p" /?,~'vi<'w O/ [;'CfmOPHiC~ alld Slali~ti<s. Vol
(~l'~ (It)N4), pp. 120 I2N.
t Initcd NaliOil~,..'l/out/ill Ih/l/('m# ol .~a,~m~ I Nc\~
York: {]nilccl NaliOilM \{llititl,~ i,,,,ucs).
~(alilu'r, I).. and M. |~. b~lCitiin. +'l)t:icrnlillanl~, ol
inlcrnnlional lrad llm~,." Rclh,lr o/Iccom>nm~ arid
SlatAti~. Vol. 6> (ItJX3). pp. ~Jl'~-]ll4.
Wcxtcrlicld. J.. - A n cMuninalion o[ IolciTn cxchanTc
t isk UlldCr lixctl and Iloaihl~ exchange lalC 1Tinlc<,. ""
JOlll'lltl] O/ [IIICI'#HII/OIItI/ Iqcom>.m'~. Vol. 7 (1U77t.
pp. 1,"41 2110.

AI>IqNI)IX:I)AIAS()L!R('I!SANDV,'\RI,\I>>I.I:I)IFINIII()NN
.V
'voltllllC ot export',: cC,ml',utcd I+'..'. cli;i,.lhi~ the
",:aLum t{gut-cs I~IV unit vHltlC h~dc',: ,,+IPakb,,tan", exports;
.,,.taro+': .V,tat i+ai1k ol PakiStall (,.arhm., i,,suc>,).
Y
Real G N P ,,flthe hiq',orling cotiilti\ ; ,.d,htmcd h,,
dcflatirig tile w . m m m l Iigtlrun h; tile hni-,lich dell;re;r:
MILIrCC: IMF (',aliOus }car:-,): (:IE('l) (,+arious ~,cat",L
I'X
Uriit ",'alum hldcx ol l:'akistan", c',,polt,,; '-,ourcc:
tinitcd Nali,.;n~, (V~li'iOtl1'~iNStlC~).
l'l)
emit ',aluc iiltlc",;oI export,, ol ml1-,Oltm ~ ct+un
tI'\. St+Ill'CO; I.)llitCd NittiOIlb, (\HI'itlH5 iS'41csJ.
/:
1"li]H[Cl'~tlllOlllill;II cxt_'h~lll~C lille CXl'UCsscd ill
rupee', per unit of h'qci<,_,,nCtIIFCIlC.+%.iIIld c;tlculatcd :t~,
H".CI'II~C ill"lllOIlthIv I'Htc.",for the tltIiIItCI:souIt.'c: ~t;Itd

]~ank ol PakiMan (valiou~, isnttCn); real exchange latch.

\~.hell IlcCdcd, I/a~.c bccll clcljllcd b~ hlkjtlg jllto accotlllt
tllc ~holcsalc plicc indiccn ol tIle C+,~tllllliu's i [l~r~~] X U t] "
~lm_'h ~u'ru ol~taincd IlOm the [ M F (\uriow, ~c_'arsl
S D ( i . SDJ. %I)L]S. and %I)[]K
\~.ithin Cluarlcr Mandald d'.iati,.',n o l bilateral r.wninal cxllallg talcs, hu
~ C h l (ICI'I|ILIII\, .lul'mn. tile Ilnitcd Statc~, and thu
tJnitcd Kingdom.
M,.\SI)(i. M,\SI).I. M.\SI)Lr%. F',I,.\SI)LIK
tomqLI~tI'ICF II10\ill~ ~I\CI'~I~C OI MHlld~tld dC\i~tliotl :Ix
dcnL'ribcd above.
( V.,\(i. ( ', A.I. ('\',,\tI.'S.(~,' "~itIK
JilL' cocIlicicnI
tll VLII'iHtioIl (It llt)lllilIiIIu'\ch~Ill#C IHtc ~, IOI" (ICI'llIiIIl',,.

Japan+ the t Jnitcd Shire,, ;tilt.[ the thutcd KmF,.Itml

E X C H A N G E RATE V O L A T I L I T Y
( ' G R U S . CGR,IP, ( ' G R U K , (',IPUS. ( ' U K U S =
pairwisc cowJrianccs of bilalcral exchange rates. For
exanlplc. ( ' G R U S is thc covariancc of cxchallgc rates
for Germany and the United Statics.
J ( ' O V = joint covariancc, calculated for each ol + the

1233

iillp,,)rtillg counlrics, COI11pLIICS lhc clrvarianc o[ ,,..'xchange rate changes experienced by the country under
COll~JdcralJon and I[IOSC other Cotlntl-Jcs tilkcI1 as il
group: effective exchange rate is created by weighting
exchange rate changes for tile countries involved bV
their respective shal'CS in ilggrcgillc exports.

Tablc A1. Export denland fimction: Linear ]ornl*

West Germany
Constant
Y (t)
Y ( t - 1)
PX/PD
E

SD
MASD

-9.747
(-4.{)25)

Unitcd States

- 10.402
(-4.599)

4.tl71
(3.766)

- 111.1172
(-6.254)

--

--

2.418
(7.359)

4.457
(4.355)

-5.19[)

--

(-3.{)52)

-5.558
(-3.469)

-9.582
(-6.373)

{/.726
(2.565)

0.681
(2.51141

{).686
(4.7211

.
-2.511
( - 1.791))

.
-3.081
(-2.237)

- 10.246
(-0.391)
-2.3462
(7.492)
-9.567
(-6.433)
{I.759
(5.513)

Japan
-5.876
(-3.334)

-1.583
(-2.{)56)

-5.774
(-3.342)

-2.610
(-0.803)

0.020
(3.020)

--

--

[).[)2{)
(3.[)34)

13.383
(2.5111)

-7.982
(-3.462)

-7.935
(-3.455)

[).064
([).247)

164.917
(2.874)

168.917
(2.992)

-0.001
(-[).247)

-184.417
(-1.618)

([).849)

172.743
( - 1.5114)

-1.2{)1
( - 1.529)

United Kingdom

--

--

--

0.002
--

/~2

0.486

0.528

0.872

0.875

0.694

0.694

0.065

DW

2.[)4

1.77

2.5[)

2.29

1.64

1.67

2.18

95.96

94.10

45.43

43.41

56.24

54.55

511.99

CONDX

*For all tables in the appendix, the numbers in the parentheses arc t-statistics. SD is within period standard
deviation of nominal exchange rates: M A S D is the four-quarter moving average of SDs; DW is the Durbin-Watson
statistic: C O N D X is condition index for multicollinearity.

WORLD

1234

DEVELOPMENT

"I'ablc A 2 . Export ch'maml .Ibm'rio,

West Germany
Constant
Y (t)

5.497
(-4.501)

Y (t

-8.31t9
II .86O)
3.899
(8.394)

--

1)

PX/PD

[Jnitcd States

-5.734
(-4.823)

4.1113
(4.124}

4.2,'4,4
(4.467)
- 1.545
(-5.691)

- 1.224
( 3.579)

11.974
(2.514)

11.929
(2.453)

0.928
(3.024)

SD

--

--

0.1)79
(11.798)

C V A-',-

-0.747
(-2.003)

Japan

8.334
(-12.131)

-4.71)2
(0.807)

3.899
(8.399)

United Kingdom
5.464
(--0.973)

1.773
(2.532)

- 1.541
(-5.682)

5.421
(I.512)

1.7114
(2.386)

--

- 1. 154
(-3.311)

MASD

log lincar fi,r,1 1:'

1.11~3
(3.418)

11.939
(3.123)
-(

....

1.715
(2.287)

-1.156
t-3.428)

11.t115
((I.1)99)

1.41C
(2.8tl8)

1.357
(2.862)

26.476
1.297)

( - 1.359)

I).4311
(-0.94h)
--

1.429

().OI)l
(1.097)

-0.887
( -2.366

--

I).992
1t).833)

--

--

--

/~

11.511

0.535

0.850

11.8511

11.671

(1.672

DW

2. 138

1.847

1.856

1.853

1.753

1.758

2. I111

122.225

122.617

71.678

71.558

4411.657

433.173

221~.302

CONDX

0.058

" ] ' h c v a r i a b l e s m e a s u r i n g e x c h a n g e r a t e risk a r c not c x p r c s s c d in log t e r m s .

+('VA = coefficient of wtrialion.

T a b l e A 3 . Eal~ort d e m a m l l h m ' t i o ,
Wcst (icrmany
('onslanl

--5.526
(-4.=..)'~S

Y (t)

3.69S
(3.953)

Y (t- I )

--

PX/PD
E

- 1.()70
(-3.121)

3.S99
(4.237)
- I. J 23
(-I.123)
0.968
(2.459~)

ND

MASD

11. 149
(-1.713)

-7.392
(5.787)

--

1.0113

Japan

U n i t e d SI:Atcs

-5.762
(-4.496)

(2.537)

- - Iog-lil ear fi,rm 2 '

- 7.401
(5.1~58)

3.s53
C,e,.295)

--

--

3.(~5
(8.(}19)

- 7.895
1.455)

United Kingdom
- 7.__ )
(1,333)

5. 175
( 1.44~)

1.944
(2.S14)

(I. 11~7
2 2 ~,

I .tit) ()
(2.S58)

[I.(ll 3
(I.(IS~,)

2 )~2
(2.936)

- 1.500
(-5.471,.I)

1.5()()
(5.362)

I. 122
(2.Sl4)

11.635
(1.348)

11.777
(I.(G2)

1.244

1.274

(2.814)

(2.858)

1t.I)57
(-I.417)

- ( I . 171~
2.1117)

11.1114
11.0181

()All 3
(0.8931

II.tl(~l
(I.194)

[1.t 164

I).498

t).51 s

tl.851

11.t~44

0.673

0. (ff),~

DW

2. 108

1.8_.

I.,'4,53

1.5114

1.827

1.85~

122.703

22.945

114.735

115.()12

437.2tl8

433.234

~AII

~.arhdqcs,

including

measures

of

risk,

a r c ill l o g

tern>.

11.427
11.9431

0.tl59
1.434)

/~ e

CONDX

2.0611
233.321

EXCHANGE RATE VOLATILITY

Table A4. Erport denland Jiulction
West Germany
Constant
Y (t-I)

PX/PD
E

X ( t - 1)
SD
MASD

- 10.853
(-4.600)

United States
- I 1.328
(-5.426)

4.675
(4.362)

2.567
(6.181)

1235

the lagged del~emh'nt variable

Japan

United Kingdom

5. 135
(-2.796)

-2.692
(-0.820)

11.1)18
(2.739)

14.153
(2.542)

-5.515

- 10.1127

-7.969

11.087

(-3.419)

(-6.279)

(3.472)

(I).33(I)

11.681
(2.489)

11.874
(5.397)

157.073
(2.727)

-0.001
(-(1.919)

-I). 1116
( -0.7321

-11.098
( -11.8141

(1.144
(I .1120)

-11.1188
( - I L 538)

- 185.271~
( - 1.6261

11.0112
(I).8851

--

--

- 3.1196
(-2.2351

- 1.652
(-2.123)

R -~

0.522

0.874

0.695

DW

1.552

2.tl99

1.851

2.027

1116.679

62.311

611.561)

56.792

CONDX

Table A5. Export demand .[imc'tion

West Germany
Constant

Y (t)
Y ( t - 1)

PX/PD
( - 11
(-2)

(-3)
E
( - 1)

(-2)
(-3)

-4.771
( - 1.583)

DW
CON DX

0.(148

tinle lags in relative price and exchange r.lle

United States

Japan

United Kingdom

-4.954
(-2.669)
I).1)13
(1.693)
--

-2.506
(-0.556)
12.1811
(2.023)
--

-9.143
(-5.917)
-0.481

-7.989
(-7.989)
-0.450

-0.030
( - ( I . 112)
-0.1311

(2.(1118)

(-(1.295)

(-11.184)

(-0.472)

-11.1115
(-11.1111)
1.622
( 1.172)
1.3119
(2.049)
- 1.359
(-1.310)
1.11116
( 1.11t151
- 0.tl(-~0

-2.261
( - 1. 171)
3.258
( 1.7821
5.197
(0.772)
,.894
(11.962)
2. 105
( - 1.359)
1.680

1.7115
(0.695)
0.2112
10.1185)
246.,"; 14
(I .983)
265.971
(-I.397)
288.999
(1.570)
-65.015

0. 115
(0.415)
I).294
( 1.0461
11.(1112
(-0.793)

(-0.569)

(-0.859)

-1.4118
(0.963)
-5.743
(-3.670)
3.350

(-(I.(19(I)

R"

--

-9.699
(-5.7119)
2.3211
(6.752)
--

SD
MASD

--

1.547
( - I.llt)l))

0.568
2.1119
229.793

(2.3131
-5.787
(-0.737)
--

-216.157
( - 1.6361
--

0.880

0.692

2.365
3.287.at111

1.561
227.234

(I.1101
(0.2711)
11.0112
{I).5671
-().0112

0.1105

(I. 1311)
-0.059
2.1185
178.7311

1236

W O R L I ) I)EVI21A)I'M E N I

"l'ablc ,'\6. t:~porl d e m a m l ,l~mclioH -- c~chan~e ri.sk itt real lernts

West German'+
('Oll Y,I:.lll[

- 7.72(1
3.48(1)

United Statics
8.235
(-5.185)

(~.417
( 3.1~1

Y (t)
Y (t

Japan

(ll++itcd Kitlgdom
I 171
(3.5(17)

II t 22
(3.0S2)
I)

3.444

(3.611 )
t'X/I'I)
E

MASD

3. (139
2.519)

- 9. (~(~8
(-(i.4991

(i. 896
(- 2.933)

11.471
(1.541)

11.71(I
(5.205)

113.(~(15
(1.728)

1.352
1.244)

1.(114
( - 1.6891

193.~C5
(11.92~;)

11.4tl2

R~

DW
('ONDX

111.1163
(1.77a)

2.176

((i.425 }

tl.844

11.~27

11.113S
(o.152)

-II. 150
(11.37(i)

I).111)5

1.734

2.202

1.6,'.;9

2. IS,S

S1.2711

48.8(11)

(10.298

54.34O

( ' a l c u h i t c d for r.:tl exchange rates.

Tablc A7. Eff~ort d e m a n d l h t l c m m

('onstant
Y It-l)
I'X/PD

.lilpiln

WCM (}crnlany

lJnitcd SIilICS

7.03(I
(3.094)

-7.900
(5.171)

--4.472
(-2.501)

ll.N311
(0233]

2.361
(7.949)

0.1117
{2.6(121

10.3,'e,7
(I .S35)

(-2.240)

9.890
-6.893)

--&447
(-3.745)

0.011
(o.o43)

0.516
(I .650)

11.617
(5.766)

182.4911
(3.1157)

-11.tl01
{ 1.439)

II.2111
( - I.(-,02)

II.0Sl
(-0.715)

3.021
(3.358)
- 3.16~

Sl):

MASD

e.~changc rAk in real grcm'tl* terms

llnitcd Kingdom

-O.O42
(-0.422)

11.474
-2.471)

I?"

O.379

11.N5(i

11.(141

DW

1+715

2.272

13)23

2. 177

7(~.529

44.1)32

55.232

54.1153

('()NDX

11.(115

+('alculatcd on the basis of period to period percentage change in the real cxch:mgc
GILL'.

EXCHANGE

RATE

VOLATILITY

1237

T a b l e A 8 . Export demand .[imction with third-countrv effects - - West Germany

Estimated

Constant

- 12.051

(-3.884)
Y (t)

4.411

- 11.955
(-4.265)
--

(3.834)
Y (t-l)

PX/PD

-- 6 . 1411
(-3.021)

CGRUS
CGRJP
CGRUK

--

--

4.374
(4.540)

4.711
(4.582)

-4.226
(4.661)

1).734
(2.766)

-0.995
(-0.482)

-I).31)4
(-11.157)

- 1.190
(-0.600)

--

--

-I).321
(-0.618)

-().(X)5
(-0.1110)

-0.072
(-0.147)

--

--

-3119.324
( - 1.426)

-234.111
( - 1.136)

-255.630
( - 1.31)1)

- 154.233
(-(I.800)

--

--

-11.1106
( - 1.6181

-0.1105
( - 1.394)

-11.005
( - 1.540)

-0.004
( - 1.269)

-0.006
(-2.430)

-0.006
(-2.446)

I).078
(1.019)

0.1)91
(1.226)

--

-0.018
(-/).647)

-0.013
(-1t.478)

--

0.1123
(1.268)

11.025
(1.435)

--

1.341
(2.287)

1.037
(1.791)

1.2811
(2.222)

11.999
11.766)

-0.216
(-11.41)2)

JCOV

1.(157
(2.244)

- 7 . 162
(-3.988)

--

-9.856
(-4.893)

0.987
(3.331)

(I.211
((I. 1112)

MASDUK

4.865
(4.573)

- 111.351
(-4.789)

1.2(11
12.871)

MASDG

MASDJ

- 11.842
(-4.456)

-6.1182
(-3.95111

1.274
(2.629)

-5.883
(-3.165)

- 12.900
(-4.514)

-6.493
(-.3.826)

MASDUS

4.633
(4.310)

coefficients

--

11.691
(2.6112)

---

-5.628
(-3.899)

--

/~2

0.475

0.515

0.547

0.548

0.553

0.561

DW

2.399

2.119

2.394

1.970

2.167

1.843

1311.553

123.672

129.861

122.306

97.1114

91.266

CONDX

1238

WORLD

Table Ag. f'].~porl d e m a n d

DEVELOPMENT

.limcli~m wilh l h i r d - c o t t n t r v

C[li'c/.v --- Th,:' U n i w d .S'lale~

Estimated cocl ficicnls

('onst:mt

- t0.375

(-5.311)

10.245
(5.501)

I 1.525
(5.492)

2. 197
(5.535)

Y It-l)

~L933
(~.(~71)

2.491
(5.453)

2. 167
(5.211(,)

Y (t)

I 1.32S
(5.4(~4)

10. 1113
7.11141

2.32 I
(7.S31h

--

2.2,"-;I
(S.2743

2.472
(5.452)

8.21 I
4.65Sf

,~. 7S(~
5.0731

,~.(12(~
( 3.9671

8.615
( 4.214)

9.71~
I 7.198)

11.721

(5.S3~0

0.770
13.5~7)

t1.(,55
(4.11871

0.72q
14.S1151

0.741
(5.392)

IL79S
(~~.2473

3.071
I1.325}

2.334
( 1 .()2N)

2.7tl3
(1.002)

1.S~)2
(().~t;5)

1.783
2.2%)

2.1197
2.8(12)

1.71L~
2.2hn)

( 2.S353

MASDUK

I).11tl2
(I).4S3)

I).(1(12
11.577)

0.(1tll
(- 0.32u)

('(IP, US

o. IS3
(- 2.~)05)

II. 195
3.214)

2.S63)

(I. 10(I
(1.572)

[I.IIitl
Id, 15)

I). llll)
(1.7~5)

l'X/l'l)

1;
MASI)G
MASI)tJS
{

('.IPUS
('UKUS

ILIG3
(

o.I hStl)

0.1141

1.3(~
I.(,)S)

1.732
2.1221

u. 755
7.4S23

2.o55

I1.11(1!
( 11.4331
IL IS3
II,I)g5

--

1.11471

,I ( '( ) V

0.492
(-(I.5S51

0.477
(11.5(,7)
I).9115

R~

11.894

(I.)(111

O. g(',5

(1.N65

I L S9

l)W

2.3211

2.121

2.591

2.321

2.277

2.11~9

77. 130

73.970

76.924

74.937

4~. 274

44.140

('()NI)X

EXCHANGE RATE VOLATILITY

1239

Tablc A I0. Export d e m a m l ,/hnclion with third country <{/~'ct,~ - - Japan

Estimated coefficients
Constant

Y (t)

-2.952
(-1.332)
0.022

-2.604
(-1.151)
--

(2.978)

E
MASDG

0.017
(2.450)

0.020
(2.709)

Y (t-l)
PX/PD

-3.376
(-1.578)

- 10.300
( -3.448

-9.832
(-3.263)

I06.755
(I .689)

119.087
(I .877)

- 4 . 167
( - 1.220)

( - 1.140)

7.782
(-3.584
131.666
(2.923)

-3.195
(1.502)

-4.316
(-2.333)

--

0.018
(2.663)

0.016
(2.336)

--

-7.6119
(-3.518)
134.064
(2.971)

-8.791
(-3.782}
169.320
(2.980)

-18.106

(-2.895)

MASDJ

2.692
(2.588)

2.634
(2.462)

1.986
(2.116)

1.987
12.101)

SDUK

CGRJP
CJPUS
CJPUK
tl~ 2

DW

CON DX

-181403
(-2.92H)

-8.365
(-I.588)

CVAUS

MASDUK

154.652
(3.074)

125.107
(0.498)

CVAJ
MASDUS

8.527
(3.715)

-163.325
(-2.895)

166.474
(0.671)

0.019
12.851)

-3.958

CVAG
SDJ

-3.998
(-2.235)

0.001
(0.138)

0.001
(0. 186)

-0.039
(-0.847)

-O.O36
(-0.781)

(1.472)

O. 140
(1.382)

0.114
(2.049)

(1.81~2)

O.

147

O. 105

0.710

0.718
1.810

0.707
1.833

1.684

83.309

80.935

57.197

[).707

1.7(17
56.198

18.653
(1.830)

18.864
(1.842)

0.005

(1.857)

0.005
(1.967)

O.265
(2.258)

0.263
12.217)

I).077
(2.154)

0.073
(2.073)

0.761

0.759

1.872

1.887

77.351

72.634

1240

WORLD

Table All.

DEVELOPMENT

Exlmrt demand .limcti(m with third-country ~[l~'cts

The United Kb gdom

E s t i m a t e d coefficients
Constant

Y (t)

,5.691
(1.34(I)

- 1.814
(0.231)

0.817
((I.178)
--

- 0 . 124
(-(I,468)

PX/PD

-0.194
(0.715)

-0.002
( - 1.457)

-0.0O2
1.718)

3.968
(1.240)

4.45(I
(1.426)

269.441

48. 145
(0. 199)

MASD.I

(I .073)
MASI)US
MASDUK

1.536
(1.735)
_1).()()(~

((1.894)
CGRUK
('JPUK
('USI.JK

1.171
(I.513)
--(I.()()(~
0.982)

11.()111
(0.439)
0.021
(0.419)
(I.()27

1).002
-(). 102)

(11.432)

(().666)

l)W
CONDX

(1.1)99

5.053
(2.93t)

--

--

-2.781
(-0.938)

15.234
(2.943)

8.541
(I.141)
-0.233
(-0.890)
(

-0.0(12
1.6112)
4.391
(1.424)

261 .()05
(1.097)

- 0 . 168
( - 0.649)
(

-0.002
1.798)

---

-(I.()01
1.334)

3.236

4.6tl2
(1.534)
113.381
(11.5511)

-().()(12
( - 1.667)

(1.844)
373.890
(2.492)

1.513

1.1116

1.261

(1.916)

( 1.5(12)

(2.(17(I)

-0.005
(0.877)

O0(15
((I.812)

0922
((I.{'~70)

- 1.095
((I.822)

--

I). 135

0.16~

O.O44
(O.822)

().044

.I(OV

1~2

0.385

1.622
(0.383)

(-o.04~)
11).1)81
(I. 167)

Y (t-l)

MASI)G

6. 146
(1.272)

0.134

(I. 170

q). 102

2.232

2.2()~

2.209

2. 173

2. 184

2.11~

103.757

1(14.862

102.712

94.33(~

27. 138

43.347