The real exchange rate and economic growth abstract i show that undervaluation of the currency a high real exchange rate stimulates economic growth. The study therefore made use of the cointegration approach the granger causality testing procedure. Firstly, the growth effects of real exchange rate changes are investigated using a wide. A reduction in demand and output may cause job losses as businesses seek to control costs. Recent analyses, in contrast, have paid it more attention. Impact of exchange rate regimes on economic growth digital. The study therefore made use of the cointegration approach the. Nov 01, 2010 in this article we test the relationship between per capita income differential and exchange rate differential between two different economic background countries. This paper investigates the effects of real exchange rate on economic growth in ghana over the period 1975 to 2015 using quarterly time series data. The main aim of this thesis is to empirically examine the effect of real exchange rate changes on economic growth. This research project which is on the impact of the nigerias exchange rate on economic growth since 1990 will be guided by the objective stated above. Fisher department of economics, the ohio state university, 410 arps hall, 1945 north high street, columbus, oh 43210, usa. We investigate the impact of movements in the real exchange rate on economic growth based on fiveyear average data for a panel of over 150 countries in the. The commission on growth and development led by nobel laureate mike spence was established in april 2006 as a response to two insights.
Impact of bank credits on economic growth and inflation 61 level movement in iran. Understanding of fixed exchange rate from demand and supply perspective. Other explanatory variables were employed in the model. Impacts of the us dollar usd exchange rate on economic. The objective of this paper is to study the effect of us dollar exchange rate fluctuations on the united states economic growth and the environment by using the svar model. Market capitalization is a proxy for the nigerian stock exchange. It can be said that one of the factors determining the way exchange rate fluctuations affect economic growth is the development level of each countrys financial markets. Impact of exchange rate on the economy both nationally and internationally. This paper investigates the impact of inflation, nominal exchange rate, fdi and capital stock on economic growth of pakistan by using time series data for the period of 19752011. It makes use of a keynesian analytical framework to derive an empirical specification, carefully constructs a real exchange rate series, and employs cointegration techniques to determine the output response to taka depreciations. Effects of exchange rate fluctuations on economic growth. The real exchange rate and economic growth european central. A positive impact has been identified in exchange rate regimes upon economic growth of the developing countries.
The real exchange rate was not at the center of the first generation of neoclassical growth models, nor was it prominent among the policy prescriptions that flowed from those models. Against this background, this research study intends to investigate the impact of exchange rate on economic growth in nigeria over a period of 28 years 1986 20. South africa is currently running at a very low phase of economic growth and this raised major concerns to different stakeholders in the country. Exchange rate volatility and economic growth journal of. Effects of exchange rate fluctuations on economic growth of nigeria okorontah, chikeziem f. Impact of exchange rate variation and inflation on the economic growth of. Shehu and youtang 2012 examined the causal relationship between exchange rate volatility erv, trade flows and economic growth of the subsaharan african countries with the reference to nigeria, which is considered as small open economy. Exchange rate is identified as a factor for turning vector of the economic growth of countries which was empirically confirmed by several related studies. Impact of exchange rate variation and inflation on the economic growth of nigeria, author. Following the breakdown of the bretton woods par value system and the widespread adoption of floating exchange rates by the major advanced 78 iv exchange rate arrangements and economic.
Quantitative analysis of the impact of exchange rate. The real exchange rate and economic growth a thesis submitted. This paper discusses the impact of currency exchange rate on economic growth and the environment. The effect of exchange rate fluctuations on economic growth varies in different countries. Some observations on the possible channels 1 martin rapetti2 abstract a recent body of empirical research has documented a strong association between the level and volatility of the rer and economic growth. This is true particularly for developing countries. Effect of exchange rate volatility on nigeria economy 19912010. Effect of exchange rate volatility on nigeria economy. An empirical investigation based on a sample of 45 developing. The real exchange rate and economic growth english the. Extending irelands 1994 model, this paper analyzes an international economy where cash or credit can be used for payment. The impact of exchange rate regimes on economic growth. I show that undervaluation of the currency a high real exchange rate stimulates economic growth. Undervaluation and economic growth in selected developing countries, 19502004 china 0 4 2 6 8 0.
One argument in defense of ols regressions of economic growth on the real exchange rate is that the direction of the possible reverse causality, i. Mori, asid, lily, mulok, and loganathan 2012 examined the impact of exchange rates on economic growth. Gdp is the dependent variable, a proxy for economic growth. The real exchange rate and economic growth english abstract. Exchange rate regimes and economic performance eduardo levyyeyati and federico sturzenegger this paper studies the impact of exchange rate regimes on inflation, nominal money growth, real interest rates, and gdp growth. Customarily, exchange rate is defined as the price of one unit of the foreign currency in terms of the domestic currency mejekomi 2000. It is a pleasure to be here in trinidad and tobago and an honor to deliver the w. Kogid, asid, lily, mulok, and loganathan 2012 researched the effect of exchange rates on economic growth by using nominal and real exchange rate. Specifically, it examines the extent to which real exchange rate has on the growth rates of the country reflecting real gdp, inflation rate and interest. Adjustment eventually occurs, often in the context of a currency, balance of payments andor a financial crisis dornbusch 1988, p.
Some job losses are temporary reflecting short term. The results of ols show that inflation and exchange rate has negative and significant affect economic growth of pakistan. Exchange rate, nigeria, economic growth background to study exchange rate indicates the values of two currencies in terms of another. Impact of exchange rate variation and inflation on the economic growth of nigeria impact of exchange rate variation and inflation on the economic growth of nigeria published on feb 5, 2015. Thus there is the need for proper management of the nigeria foreign policy so as to achieve good level of exportation. The commission on growth and development led by nobel laureate mike spence was established. Based on quarterly series for the period 1986 to 2010, the paper examines the possible direct and indirect.
Impact of bank credits on economic growth and inflation. The effect of real exchange rate on economic growth in. A balanced exchange rate together with export promotion. As a nominal variable, the exchange rate regime might not affect the longrun economic growth. Korkmaz 20 analysed the effect of exchange rate on economic growth gdp for 9 randomly selected european countries france, germany, greece, hungary, italy, spain, turkey, poland and united. This study employs the ordinary least square ols methods of estimation, heteroscedasticity and autocorrelation. Nigeria can substantially improve on its economic growth performance through improvements in the overall management of its exchange rate policy. It is the price of one currency in terms of another currency. We estimated the relationships between a real tradeweighted us dollar index, net imports in pollution intensive industries, petroleum consumption, renewable energy. So ordinary least squares method is applied to check the relation between dependent.
Kennedy school of government harvard university cambridge, ma 028 revised, september 2008 abstract i provide evidence that undervaluation of the currency a high real exchange rate stimulates economic growth. Impact of the nigerian stock exchange on economic growth. It is the required amount of units of a currency that can buy another amount of units of another currency. Quantitative analysis of the impact of exchange rate policies. Exchange rate and economic growth in pakistan 19752011. It covers the various exchange rate used in nigeria since 1990 to 2008. The research has been employed on 16 central and eastern european countries, where the exchange rate arrangement choice is a key point in the years before euro adoption.
That said, the idea that minimizing exchange rate volatility is an essential part of the growth recipe is disputed. First, poverty cannot be reduced in isolation from economic growthan observation that has. We also investigate the implications of exchange rate flexibility for financial market. Impact of exchange rate regimes on economic growth abstract it has been a challenge to identify a direct correlation between exchange rate regimes and economic growth. Recent researches have been done on the testing of international fisher effect, interest rate, gdp growth rate and purchasing power parity, but few researches based on regression analysis so we test this relationship by using simple regression model. Exchange rate, deregulation, co integration, equilibrium, bonds, depreciation. It is controversial in the literature whether depreciation of real exchange rate is expansionary or contractionary for the economy. Usd exchange rate affects real gdp and co 2 emissions in the united states both directly and indirectly usd exchange rate is positively related to petroleum consumption and net imports in. Exchange rate, nigeria, economic growth background to study. Procedia economics and finance 3 2012 18 a 23 22126716 2012 the authors. Impact of per capita income on exchange rate with regression tool.
But the impact on inflation of a change in the exchange rate depends on what else is going on in the economy. We used ols and gmm methods to estimate a growth model with dummy variables that isolate the effect of exchange rate regimes on economic growth. Introduction during the twoyear period ending in july 2012, bangladesh experienced an almost 20 per cent fall in the value of its currency with respect to the us dollar. This position finds supports in edwards 1993 who argues that investment will tend to be higher under a fixed exchange rate variability. Pdf the effect of exchange rates on economic growth. Martin rapetti, peter skott and arslan razmi march 5, 2011 abstract recent research has found a positive relationship between real exchange rate rer undervaluation and economic growth. In this article we test the relationship between per capita income differential and exchange rate differential between two different economic background countries. Abbey study 2012 examined the impact of inflation on financial development in ghana using quarterly timeseries data 19902008. Fahrettin 2001 asserted that an exchange rate, as a price of one countrys money. Effects of exchange rate movements on economic growth in. The paper employed time sequence data from 1971 to. There result depicts unidirectional reverse causality running from economic growth to exports. The impact of exchange rate and exports on economic growth of south africa pd semosa and mi aphane university of limpopo, south africa abstract. Exchange rate arrangements and economic performance in.
One percent increase in inflation will decrease gdp by 0. Di erent rationales for this association have been o ered, but. The real exchange rate and economic growth dani rodrik john f. The exchange rate, real economy and financial markets blaise gadanecz and aaron mehrotra1 abstract in this paper we analyse the relationship between increased exchange rate flexibility and economic growth and its volatility in emerging market economies. Augmented dickey fuller adf test is applied to check the stationary of variables. Recent researches have been done on the testing of international fisher effect, interest rate, gdp growth rate and purchasing power parity, but few researches based on regression. This paper analyzes the role of the real exchange rate in the growth process, the channels through which the real exchange rate influences other variables, and policies useful and not useful for governing the real rate. One of the most important issues left unanswered in international finance is the debates over which type of exchange rate can best stimulate economic growth.
Exchange rates macroeconomic effects of economics tutor2u. An exchange rate appreciation causes a slower growth of real gdp because of a fall in net exports reduced injection and a rise in the demand for imports an increased leakage in the circular flow. The impact of exchange rate and exports on economic. The real exchange rate and economic growth1 barry eichengreen. This study examines the impact of the nigerian stock exchange on economic growth from 1981 to 2011. The exchange rate, real economy and financial markets. Exchange rate arrangements over the past two decades, the mix of exchange rate arrangements in developing countries has changed sig nificantly. Aizenman 1994 has argued that exchange rate regime can influence economic growth through their effect on the rate of physical capital accumulation. This paper aims to understand the effects of exchange rate changes on economic growth in bangladesh. Exchange rate regimes and economic growth in central and.
Exchange rate misalignment and economic growth 123 financial markets as outlined in the above, the economy is often disrupted during a period of sustained misalignment especially overvaluation. Pdf this study attempts to investigate the effects of the exchange rates on. Pdf impact of exchange rate on economic growth in sri. According to 2010, exchange rate is rate at which one currency may be converted into another. The impact of exchange rate fluctuation on the nigerian. Impact of exchange rate variation and inflation on. This paper examines the impact of exchange rate volatility on economic growth. The effect of real exchange rate on economic growth in ghana. Atan2 this study investigates the effect of exchange rate movements on real output growth in nigeria. Exchange rate regimes and economic performance 63 exchange rate regime is better suited to deal with increasingly global and unstable world capital markets.
The impact of exchange rate regimes on economic growth with. Effects of exchange rate movements on economic growth in nigeria. Effects of exchange rate movements on economic growth in nigeria eme o. No matter which way currencies zig or zag, it seems there is always an analyst with a quotable, ready explanation.
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