The main aim of this thesis is to empirically examine the effect of real exchange rate changes on economic growth. The impact of exchange rate fluctuation on the nigerian. The exchange rate is the rate at which one currency trades against another on the foreign exchange market. The real exchange rate and economic growth yolcu karadam, duygu ph. Effects of exchange rate movements on economic growth in nigeria eme o. Foreign capital and economic growth, nber working papers 619, national bureau of economic research, inc. A competitive exchange rate is a condition for economic growth gala and lucinda20061. As a result the stock exchange market is able to influence investment and economic growth. This pdf is a selection from an outofprint volume from the national bureau of economic research volume title.
The stock exchange market mainly provides liquidity by enabling firm to raise funds through the sell of securities with relative ease and speed. We apply the ols approach to estimate the regression equation and present the model that analyzes the impacts of exchange rate on economic growth. The purpose of this paper is to analyse empirically the effects of exchange rate on economic growth in the fyrom. 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. 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. Real exchange rate misalignment and economic growth. The rupee weakened to a historic high against the usd in september, compounding the poor performance of recent months. Abstract i show that undervaluation of the currency a high real exchange rate stimulates economic growth. The impact of exchange rate regime s on economic growth. Section 3 examines the countrys current exchange rate policy and recent movements in the exchange rate. 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. Benchmarking the constraints, imf staff papers, palgrave macmillan, vol.
The impact of exchange rate regimes on economic growth with. It is controversial in the literature whether depreciation of real exchange rate is expansionary or contractionary for the economy. Pdf exchange rate misalignment and economic growth. Most developing countries do not have the relatively. Chinas economic growth and its real exchange rate abstract the shocks that underlie chinas comparatively rapid growth include gains in productivity, factor accumulation and policy reforms that increase allocative efficiency. The evidence linking exchange rate volatility to exports and investment is less than definitive. Using pdols estimation to arrive at a measure of misalignment and employing standard growth regressions, a number of interesting results emerge. The real exchange rate and economic growth1 barry eichengreen. That said, the idea that minimizing exchange rate volatility is an essential part of the growth recipe is disputed. Ito, isard and symasnsky 1999 found that high economic growth. The real exchange rate and economic growth world bank.
Most developing countries do not have the relatively devaluated exchange rate which bresserpereira referred to as a competitive exchange rate. This paper aims to understand the effects of exchange rate changes on economic growth in bangladesh. Exchange rate theory and practice volume authoreditor. Section 5 presents and discusses the macroeconomic effects of devaluation in ethiopia. This is true particularly for developing countries. The occasion was a talk i gave at princeton when i was on the job. 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. Based on quarterly series for the period 1986 to 2010, the paper examines the possible direct and indirect.
Analysis of the effect of inflation, interest rates, and. 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. The exchange rate and economic growth international growth. Pdf exchange rate misalignment and economic growth justin.
There were several reasons underlying the change that is reflected in the decision of the growth commission to seek a paper on exchangerate analysis. I only had the opportunity of meeting professor lewis once. Real exchange rate, economic growth, instrumental variables, panel data. Undervaluation and economic growth in selected developing countries, 19502004 china 0 4 2 6 8 0. Interest rates have an influence on economic growth. The real exchange rate and economic growth a thesis submitted. Although in real life, the dealer would make a profit. While overvaluation hampers gdp growth, as well as growth and employment in export sectors, we have. Kennedy school of government harvard university cambridge, ma 028 revised, october 2008 abstract i show that undervaluation of the currency a high real exchange rate stimulates economic growth. The real exchange rate and economic growth abstract i show that undervaluation of the currency a high real exchange rate stimulates 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. The exchange rate has also been a noteworthy macroeconomic element in some empirical studies on the determinants of economic growth of a country adeleke, 2014. The wellknown balassasamuelson hypothesis links productivity growth in tradable industries with real appreciations. Pdf impact of exchange rate on economic growth in sri lanka. Pdf impact of exchange rate on economic growth in sri. Pdf real exchange rate volatility, economic growth and. First, poverty cannot be reduced in isolation from economic growth an observation that has. 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. 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. The theoretical exchange rate literature is mainly tailored to richer.
In the case of the two east asian tigers depicted in. The real exchange rate and economic growth dani rodrik. Undervaluation and economic growth in selected developing countries. Evidence from nigeria, authorokwuchukwu odili, year2015. The findings indicate that more flexible exchange rate regimes are associated with a greater increase in economic growth following an increase in remittances, but also that the impact of remittances on growth is positive under a fixed regime. The impact of exchange rate regime s on economic growth with. India exchange rate the rupee crashes to record low due to large economic imbalances and suppressed investor appetite for emergingmarket assets. Kogid, asid, lily, mulok, and loganathan 2012 researched the effect of exchange rates on economic growth by using nominal and real exchange rate. Exchange rate, economic growth, panel data analysis.
The effect of exchange rate fluctuations on economic growth varies in different countries. First, poverty cannot be reduced in isolation from economic growthan observation that has. Dec 24, 2017 the exchange rate is the rate at which one currency trades against another on the foreign exchange market. The real exchange rate and economic growth european central. The issue of exchange rate and the achievement of a realistic exchange rate for the naira have continued to generate a great challenge to macroeconomic policy formulators, owing to its unarguable significance in bringing about economic growth. This is true particularly for devel oping countries.
A relationship between exchange rate regimes and economic growth has been identified through statistical approaches. Effects of exchange rate movements on economic growth in nigeria. Pdf the effect of exchange rates on economic growth. 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.
The extent or magnitude of the exchange rate effect on economic growth also needs to be examined. This pdf is a selection from an outofprint volume from the national bureau of economic research. It is a pleasure to be here in trinidad and tobago and an honor to deliver the w. The large stock exchange market lower the cost of mobilizing savings, facilitating investment. Exchange rate, growth, cointegration, error correction, bangladesh. The real exchange rate and economic growth dani rodrik john f. There were several reasons underlying the change that is reflected in the decision of the growth commission to seek a paper on exchange rate analysis.
This paper studies the question of whether exchange rate policy affects the impact of remittances on economic growth in recipient countries. In each of these epochs, the economic and political considerations underpinning the exchange rate policy had. Exchange rate is identified as a factor for turning vector of the economic growth of countries which was empirically confirmed by several related studies. Recent analyses, in contrast, have paid it more attention. The impact of exchange rate on the nigeria economic growth. Real exchange rate volatility, economic growth and international trade in an emerging market economy.
The studies on the chinese economy and its currency issues are also growing in the past two decades. The impact of real exchange rate misalignment on economic. The results indicated that as compared to flexible exchange regime, growth rate was higher by 1. The aim of this article is to assess the role of real effective exchange rate volatility on longrun economic growth for a set of 82 advanced and emerging economies using a panel data set ranging. Firstly, the growth effects of real exchange rate changes are investigated using a wide. Exchange rate flexibility and the effect of remittances on. Atan2 this study investigates the effect of exchange rate movements on real output growth in nigeria.
The commission on growth and development led by nobel laureate mike spence was established in april 2006 as a response to two insights. Section 4 discusses why the real exchange rate is a potent instrument of development policy. The real exchange rate and economic growth brookings papers on economic activity, 2008, no. It is the required amount of units of a currency that can buy another amount of units of another currency. 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. Influence of real exchange rate on the financegrowth nexus in.
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