AN ANALYSIS OF EXPORT DEMAND FUNCTION FOR SELECTED AGRICULTURAL PRODUCTS: A CASE OF PAKISTAN

Abstract

Estimation of export demand function of Pakistan for three important destinations of China, Saudi Arabia and United Arab Emirates has been investigated in this study. The dataset consists of annual time series data spanning from 1990 to 2021. Different data sources like various issues of Economic Survey of Pakistan, UN Comtrade, WDI and State Bank of Pakistan (SBP) were consulted to collect the required data. Based on the three destinations we regress 6 models for our two selected commodities. Before regression we checked the data for unit root and found that our variables have mixed order of integration. To scrutinize the data, we employed ARDL estimation strategy and found that in case of China and Saudi Arabia the foreign income and relative prices have significant influence on rice export demand function while for UAE foreign income were found insignificant. In case of cotton, relative prices are insignificant for Saudi Arabia and China and improve export demand in UAE. Domestic Prices of rice showed negative impacts for Saudi Arabia and United Arab Emirates and positive for China while that of cotton it was found significant for China and United Arab Emirates and insignificant in case of Saudi Arabia. Exchange rate were found with positive contribution towards increase in export demand function of both rice and cotton in case of all the three destinations. We also checked our models for diagnostic tests and discovered that there are no issues related to serial correlation and heteroskedasticity and furthermore, the CUSUM and CUSUMQ analysis suggested that our coefficients have stable behavior over the course of selected study period. Based on the findings of the study it is suggested that the government of Pakistan may continue with devaluation policy as it helps in export promotion.