The impact of real effective exchange rate on revealed comparative advantage and trade balance of Pakistan

This study estimates the effects of devaluation and appreciation of real effective exchange rate ( REER ) on revealed comparative advantage ( RCA ) at Harmonized System 2-digit level of exports in Pakistan. A non-linear Autoregressive Distribute Lag ( ARDL ) technique is applied to test the asymmetric evidence. This study employs two models to explore the export performance. Findings/Originality: The results of model 1 estimation confirm the proof of asymmetric ARDL and concludes that devaluation has a positive effect on selected RCA ’s index value and helps enhance exports of Pakistan. Meanwhile, the appreciation of REER is having an adverse impact. Model-2 estimates the effect of these selected RCA’s , REER , and world aggregated income ( Yw ) on the trade balance ( TB ) of Pakistan. The results estimate that an increase in selected RCA’s index values, world aggregated income, and REER depreciation is useful to decrease in deficit TB of Pakistan.