Differential Impact of Commodity Price Shocks on Export of Textile Industrial Chain of Pakistan

Abstract

Purpose - In Pakistan, textiles account for 60% of total export earnings, fluctuations in textile prices have a significant impact on foreign earnings, national income, and the country’s terms of trade. This study attempts to highlight the fact that commodity price shocks have industrial differences and price shock is transmitted along with textile industries chain from upstream industries to downstream industries. 

Design/methodology/approach - It uses monthly data over the period July 2008 to June 2020 and employs the SVAR model.

Findings - The finding of the study provides insight that downstream industries are the most affected industries by commodity price shocks. Whereas the upstream industries do not respond significantly to these shocks. However, midstream industries are negatively affected by food and education price shocks. The results of our analysis provide a clear view to policymakers that which category of commodity price shocks can lead to a boom and which to bust.

Originality/value – This is our original work to the best of our knowledge, there is no well-known study that has been conducted to examine the commodity price transmission mechanism for the exports of the textile industry chain of Pakistan.

Limitations/Implications – Our results provide guidance to policymakers that one policy for all is not a good option as all industries of the textile industry chain are not affected by these shocks equally.