<p>There are some academic papers dealing with this question (but beyond the specific case of Pakistan)</p>

<p>Note first that inflation is inversely correlated with real exchange rates (as long as nominal exchange rates do not adjust instantaneously to prices).</p>

<p>The following numerical example from <a href="https://www.sciencedirect.com/science/article/pii/S0305750X99000455" rel="nofollow noreferrer">Gylafson (1999)</a> illustrates the point. </p>

<ul>
<li>Suppose the real exchange rate index <span class="math-container">$R$</span> is initially 100 and the inflation rate <span class="math-container">$p$</span> is 10% per year, so that <span class="math-container">$R$</span> decreases gradually to 100/1.1= 90.9 at the end of the year. </li>
<li>Suppose, moreover, that the nominal exchange rate adjusts fully to prices with a one-year lag, restoring <span class="math-container">$R$</span> to 100 at the beginning of next year. This means that the average value of R over the year is (100 + 90.9)/2=95.45. </li>
<li>Now suppose inflation increases to 20%, so that R falls to 100/1.2=83.3 at year's end. Then the average value of <span class="math-container">$R$</span> over the year is (100 + 83.3)/2=91.67. </li>
<li>Therefore, the <strong><em>real exchange rate is inversely related to inflation</em></strong> as long as the adjustment of the nominal exchange rate to prices is not instantaneous.</li>
</ul>

<p>Then, currency overluation may hurt exports. </p>

<p><a href="https://www.sciencedirect.com/science/article/pii/S0305750X99000455" rel="nofollow noreferrer">Gylafson (1999)</a>'s paper is interesting because it relates exports and inlfation to growth. His main conclusion is that, in the period under review (1985-94), <strong>high inflation</strong> and an abundance of natural resources tended to be associated with <strong>low exports</strong> and slow growth.</p>

CC BY-SA 4.0
2020-04-01T17:41:35.623Z
2020-04-01T21:08:23.557Z
2020-04-01T21:08:23.557Z
emeryville
<p>I want to know about the relationship between inflation and exports. What is the effect on exports when inflation increases or decreases?</p>

CC BY-SA 4.0
2020-04-01T17:42:14.280Z
Welcome! Can you complete this sentence ... "if the country..."?
emeryville
<macroeconomics><inflation><international-trade>
What is the impact of inflation on Pakistan's exports?
fazila ejaz
# What is the impact of inflation on Pakistan's exports?

(Asked by: username_0 on 2020-04-01)

I want to know about the relationship between inflation and exports. What is the effect on exports when inflation increases or decreases?

**Tags:** macroeconomics, inflation, international-trade
> **Comments:**
> **username_1**: Welcome! Can you complete this sentence ... "if the country..."?  

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## 1 answers

### Answer by username_1 on 2020-04-01. Score: 1

There are some academic papers dealing with this question (but beyond the specific case of Pakistan)

Note first that inflation is inversely correlated with real exchange rates (as long as nominal exchange rates do not adjust instantaneously to prices).

The following numerical example from [Gylafson (1999)](https://www.sciencedirect.com/science/article/pii/S0305750X99000455) illustrates the point.

* Suppose the real exchange rate index $R$ is initially 100 and the inflation rate $p$ is 10% per year, so that $R$ decreases gradually to 100/1.1= 90.9 at the end of the year.
* Suppose, moreover, that the nominal exchange rate adjusts fully to prices with a one-year lag, restoring $R$ to 100 at the beginning of next year. This means that the average value of R over the year is (100 + 90.9)/2=95.45.
* Now suppose inflation increases to 20%, so that R falls to 100/1.2=83.3 at year's end. Then the average value of $R$ over the year is (100 + 83.3)/2=91.67.
* Therefore, the ***real exchange rate is inversely related to inflation*** as long as the adjustment of the nominal exchange rate to prices is not instantaneous.

Then, currency overluation may hurt exports.

[Gylafson (1999)](https://www.sciencedirect.com/science/article/pii/S0305750X99000455)'s paper is interesting because it relates exports and inlfation to growth. His main conclusion is that, in the period under review (1985-94), **high inflation** and an abundance of natural resources tended to be associated with **low exports** and slow growth.


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