Impact of devaluation on Pakistan's external trade : an econometric approach

TL;DR: This article showed that nominal devaluation does not improve the trade balance but improves the balance of payments, and that the improvement comes through the creation of tradeable, higher exports, and in an improvement of the external accounts of the country in question.

Abstract: Exchange rate policy to improve external competitiveness has now become the centre piece of any adjustment effort. It is expected that a nominal devaluation will result in expenditure switching, increased production of tradeable, higher exports, and in an improvement of the external accounts of the country in question. Recently, the traditional stabilisation packages, and especially their devaluation component, have come under attack by a number of authors.! It has been argued that devaluation can be counterproductive because exports and imports are relatively insensitive to price and exchange rate changes, especially in developing and semi-industrialised countries.2.3 If the price elasticities of imports and exports are sufficiently low, the trade balance expressed in domestic currency may worsen. Grubel (1976) has argued that a country's persistent payments imbalances can be due only to faulty monetary policy and cannot be corrected by either devaluation (exchange rate policy) or the use of fIscal policy. In a recent article, Miles (1979) claims to have provided the requisite evidence to support Grubel's argument. Miles (1979) shows that devaluation does not improve the trade balance but improves the balance of payments. This results implies that the improvement comes through the capital account.

Summary

1. Introduction

• The authors start their paper with a review on some key theories.
• The authors then outline the research context and describe their research method, and then report their findings.
• These findings are discussed and their implications for innovation management practices in supply chains are considered.

2. Background to the research

• During the past decade of innovation research the collaborative and open aspect of innovation has received an increasing share of attention reflecting the fact that the closed within organisation mode of innovation has overwhelmingly been taken over by the open innovation mode in industries of all kinds (Chesbrough, 2003; Chesbrough and Crowther, 2006) .
• This trend has led companies to focus on core competences and committing more to in-depth partnerships with selected partners (Cai et al., 2014a; Prahalad and Hamel, 1990) .
• Within a network the focal firm has the central actor position and can shape the stability and development of the system (Iansiti and Levien, 2004) .
• These focal companies are often large companies and have thousands of more specialised companies within their supply network.

2.1. Purchasing portfolio models

• The firms leading the supplier networks have developed different types of relationships with their partners; some relationships rely on close cooperation, whereas others are more transaction based (Vanhaverbeke and Cloodt, 2008) .
• Kraljic's approach is to optimise the dyadic relationships with suppliers by taking into account the capabilities of suppliers and the related risks.
• His matrix defines four types of purchases: non-critical (low risk, low impact), bottleneck (high risk, low impact), leverage (low risk, high impact), and strategic (high risk, high impact).
• Moreover critique claims that portfolio approach is less suitable in context where the suppliers are taking part in product developing.

2.2. Management of innovative supply networks

• Until recently, the literature on the management challenges and possible obstacles of innovation activities in value networks with small and medium size companies has been scarce (Gassman et al., 2010; Wynarczyk, et al., 2013) .
• They are generally well-equipped to capitalise on emerging market opportunities, and will often do so aggressively.".
• Innovating in these potentially coopetitive circumstances (Nalebuff and Brandenburger, 1996) increases the challenges in the orchestration of the R&D relationships and knowledge sharing (Ritala and Tidström, 2014; Ritala et al., 2014) .
• Other important intangible mechanisms were open communication and maintaining a common vision over time (Ritala et al., 2013) .
• Especially the smaller participants of a supply chain should focus on selection of practices and partners to achieve successful collaboration in innovation (Theyel, 2013) .

3. Research method and data collection

• The final results of the research were presented to the board and the participating companies for verification of the instrument and context validity.
• Another technique the authors have applied to improve the relevance and context validity of this research was to present and discuss the results with a wider audience consisting of the companies acting within the same or similar ecosystems.
• Finally, this article was written on the basis of final report accepted by the board and distributed to all participating companies.
• For the above reasons the authors are quite confident about the validity of their research.
• The authors also have set up a study database (see e.g. Miles and Huberman, 1994) , which includes all the study notes, study documents such as interview tapes and transcribes, and secondary data collected during this research, as well as a list of direct quotes from transcribed interviews related to in the reported findings this study.

5. Findings

• The network was not fully satisfied with the current situation.
• Building on the analysis of the research data, the authors found three key factors to affect the co-innovation ability of the ecosystem.
• These issues are described next in more detail.

6. Discussion and conclusions

• The strategic principles guiding the way how supply management is conducted and operationalised influence significantly on the ability of the companies to utilise the innovation potential of their value network.
• The authors empirical study describes this task is not an easy one.
• Especially, it shows that the transformation towards co-innovating supply network has pitfalls, which may hinder or even prevent capitalising the benefits.
• The challenges found in their empirical study are rather fundamental requiring the management to take explicit stance on the ownership of ideas and of customers as well as on the responsibility over development of the business regarding their supply network:.