Exchange Rate Volatility and Import Demand Function: A Comparative Analysis of Selected SAARC Countries

This study used the panel ARDL approach and GARCH model to study the impact of exchange rate volatility on the import demand in the SAARC region covering Bangladesh, India, Pakistan and Sri Lanka from 1980 to 2014,. Our results show that GDP and relative prices have positive impact on imports in selected countries, but in case of India relative prices has negative impact on imports. While REER and VREER volatility nave negative impact on imports of the sample SAARC countries, while in case of Bangladesh VREER has positive relationship with import demand. It is recommended to the policy maker, that Pakistan should need to trade with the countries in their own currency rather than vehicle, which brings less volatility in exchange rate as well as in imports and hence in make less volatile domestic market dynamics.