Abstract
We examine if and why export responses to real exchange depreciations are lower than those to appreciations. We document this asymmetric response using macro-level data for Pakistan and show that export adjustments after depreciations are less than one-third as fast as those to appreciations. We use product-destination level data to examine three complementary drivers of this asymmetry: (i) information frictions that increase the search costs of finding new clients; (ii) supply constraints related limited access to credit that reduce exporters’ capacity to scale up after relative prices become more favorable; and (iii) reduced prices in US dollars offered by international buyers after local currency depreciations, akin to a pricing-to-market mechanism. We find evidence of the three drivers explaining the dampened export response to depreciations. Policymakers in developing countries should consider addressing these issues to maximize export responses to real depreciations.
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