MKT529 GDB Solution 2023

 

MKT 529

GDB solution

Spring 2023

 

Topic: Current Trends in export of Pakistan.

 

Learning objectives: The objective of this GDB is to make students familiar with real life issues related to exports and relate it with academic concepts.

 

Scenario:

Political instability in a country has an impact on imports and exports. In Pakistan, it has led to an increase in Dollar rate. At the same time inflation rate has also increased. Recently there has been a ban on several imports causing some industries to stop their operations thus creating increase in prices of local products. Shortage of dollar reserves has also increased delays in payments internationally causing increase in overall prices and economic instability.

 

Requirement:

Keeping in view above scenario, discuss whether increase in inflation rate has any impact on exports of a country or not. Justify your answer with logical reasons.

 

Solution:

 

Inflation is a key factor that can have a significant impact on a country's exports. In the given scenario, where Pakistan is experiencing political instability, an increase in the inflation rate will likely have an impact on the country's export performance.

Increase in inflation rate have a negative impact on the exports of a country. It can make exports less competitive, lead to pricing pressures, hinder investment, and potentially reduce export demand. Thus, in the scenario described, the combination of political instability, a rise in the Dollar rate, and increased inflation in Pakistan is likely to have adverse effects on the country's export performance and contribute to economic instability.

 

Justification:

·        When inflation rises, the cost of production also tends to increase. This is because inflation affects various input costs such as labor, raw materials, and energy. As the cost of producing goods and services increases, it becomes more expensive for exporters to manufacture and offer their products at competitive prices in international markets. This can erode the competitiveness of Pakistani exports.

 

·        As a country experiences inflation, its currency tends to depreciate in value relative to other currencies. In the case of Pakistan, the increase in the Dollar rate indicates a depreciation of the Pakistani rupee. A weaker currency makes exports relatively cheaper for foreign buyers, which can potentially boost export competitiveness.

 

·        When inflation rises, businesses may face higher costs for inputs. To maintain profitability, exporters may be forced to raise their prices. However, higher prices can make the products less appealing to foreign buyers, resulting in reduced export demand.

 

·        Inflation creates an environment of economic uncertainty. Reduced investment can limit the capacity for exporters to increase production, improve product quality, and explore new markets, all of which are vital for export growth.