This paper analyzes the impact of exchange market forces on Pak-Rupee/US dollar exchange rates during the 1965-1971 globalization period. The main findings are that a) the behavior of Pakistan’s fundamentals relative to those of the USA help to explain exchange market forces against the Pak-Rupee; b) during the run up to devaluation in the globalization period the monetary authorities in Pakistan were acting to reduce domestic credit; but that c) additional pressure was brought against the Pak-Rupee from speculative sources. These findings relate to current thinking on the choice of the exchange rate regime as even well behaved fundamentals may not be sufficient to sustain a currency on its peg.
This paper presents empirical evidence in support of the
Linder theory of international trade for three of the South Asian
countries, Bangladesh, India, and Pakistan. This finding implies that
these countries trade more intensively with countries of other regions,
which may have similar per capita income levels, as predicted by Linder
in his hypothesis. The contribution of this research is threefold:
first, there is new information on the Linder hypothesis by focusing on
South Asian countries; second, this is one of very few analyses to
capture both time-series and cross-section elements of the trade
relationship by employing a panel data set; third, the empirical
methodology used in this analysis corrects a major shortcoming in the
existing literature by using a censored dependent variable in
estimation.
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