Examining the Asymmetric Effects of Third-Country Exchange Rate Volatility on Pakistan–China Commodity Trade

Abstract

Keeping in view the idea of the third-country effect by Cushman, the analysis attempts to capture the asymmetric impact of third-country exchange rate volatility on Pakistan–China commodity trade. The empirical analysis is based on the annual data for 14 industries that export from Pakistan to China and 34 industries that import to Pakistan from China. The findings of the study confirm that nonlinear models generate more significant results both in the short and long runs. Moreover, the empirical findings suggest that the asymmetric assumption alone is not enough, and instead, we should use it along with the third economy effect.