Yen versus rupee: how exchange rate fluctuations shape bilateral trade and an industry-specific S-curve perspective

Introduction Reinvestigating the S-curve phenomena at the industry level provides deeper insights about industry-specific trade dynamics, at aggregate-level analysis often complicates. We attempted to empirically determine the S-curve for fifteen 2-digit industries that were involved in trade between Pakistan and Japan. Methods Using the cross-correlation function, which suggests that there may be a positive correlation of the future trade balance with the current exchange rate, while a negative correlation of the past trade balance with the current exchange rate. Thus, plotting these positive and negative coefficient values becomes an S-curve pattern. Results and discussion The outcomes of the study show that the S-curve is exhibited only in three industries out of fifteen. The evidence indicates that exchange rate depreciation is not favorable to improving the trade balance of Pakistan involving trading with Japan. Policymakers should focus on other factors to expand the trade balance of a country, like diversification of the product, innovation, and trade facilitation.