Cotton and textile exports comprise an integral part of Pakistan’s total exports to the world. This study investigates the importance of the real effective exchange rate (REER), the industrial production index (as a proxy of income), and the volatility of exchange rate on Pakistan’s cotton and textile exports. The export demand function is estimated using monthly time-series data from September 1999 to February 2021 and an autoregressive distributed lag model. The ARCH and GARCH models are employed to analyze the impact of the REER’s volatility on total cotton and textile exports. Estimation results establish that a 1% depreciation of the REER increases total cotton and textile exports by 0.922% in the long run. The coefficients of the ARCH and GARCH terms are positive and significant at the 5% level, accentuating the importance of the REER and the industrial production index as key determinants of Pakistan’s cotton and textile export demand.

JEL codes: F14, F10, C12