ARTICLE

DOES BUDGET DEFICIT AND POLITICAL STABILITY EFFECT REAL EXCHANGE RATE IN SOUTH ASIAN COUNTRIES

  1. HOME
  2. ARTICLE

03 Pages : 26-38

http://dx.doi.org/10.31703/gmsr.2021(VI-I).03      10.31703/gmsr.2021(VI-I).03      Published : Mar 2021

Does Budget Deficit and Political Stability Effect Real Exchange Rate in South Asian Countries?

Abstract

    The study investigates the effect of political stability and budget deficit on the real exchange rate. We used a panel data set of south Asian countries, including Pakistan, China, Bangladesh and India. We applied the panel unit root test, Kaos panel Cointegration and fully modified the least square in the study to reach robustness of findings. Findings reveal that real exchange rate(RER) and political stability are positively related. It supports the argument that political stability attracts foreign investment, appreciates local currency, and leads to higher RER. However, results reveal that the budget deficit is not related to RER. This study provides new empirical evidence to policymakers and government officials that political stability encourages foreign investors and appreciates exchange rate.

    Budget Deficit, Political Stability, Exchange Rate

    (1) Ghulam Nabi
    Assistant Professor, Department of Business Administration, University of Kotli Azad Jammu & Kashmir, Pakistan.
    (2) Kalimullah Bhat
    Assistant Professor, Department of Banking and Finance, University of Kotli Azad Jammu & Kashmir, Pakistan.
    (3) Faheem Ghazanfar
    Associate Professor, Department of Public Administration, University of Kotli Azad Jammu & Kashmir, Pakistan.
Fulltext PDF

References

  • Alesina, A., Özler, S., Roubini, N., & Swagel, P. (1996). Political instability and economic growth. Journal of Economic growth, 1(2), 189-211.
  • Alesina, A., & Perotti, R. (1996). Income distribution, political instability, and investment. European economic review, 40(6), 1203-1228.
  • Ali, S. H., Hashmi, S. H., & Hassan, A. (2013). Relationship between political instability and domestic private investment in Pakistan: A time series analysis. Pakistan Business Review, 15(1), 1-26.
  • Asteriou, D., & Sarantidis, A. (2016). Political Instability and Stock Market Returns: Evidence from OECD Countries. Economics and Business Letters 5(4), 113-124.
  • Basher, S. A., Haug, A. A., & Sadorsky, P. (2016).
  • Bahmani-Oskooee, M., & Nasir, A. B. M. (2002). Corruption, law and order, bureaucracy, and real exchange rate. Economic Development and Cultural Change, 50(4), 1021-1028.
  • Barro, R. J. (2013). Education and economic growth. Annals of economics and finance, 14(2 A), 277-304.
  • Barro, R. J. (1996). Democracy and growth. Journal of economic growth, 1(1), 1- 27.
  • Benhabib, J., & Spiegel, M. (1992). The Role of Human Capital and Political Instability in Economic Development. CV Starr Center for Applied Economics, New York University.
  • Beckmann, J. R., Czudaj, & Pilbeam, K. (2015). Causality and Volatility Patterns between Gold Prices and Exchange Rates. North American Journal of Economics and Finance 34, 292-300.
  • Bouraoui, T. (2015). The Effect of Reducing Quantitative Easing on Emerging Markets. Applied Economics 47(15), 1562-1573.
  • Bonfiglioli, A., & Gancia, G. (2015).
  • Bouraoui, T., & Hammami, H. (2017). Does political instability affect exchange rates in Arab Spring countries?. Applied Economics 49(55), 5627-5637.
  • Chowdhury, K. (2012). Modelling the Dynamics, Structural Breaks and the Determinants of the Real Exchange Rate of Australia. Journal of International Financial Markets, Institutions & Money 22: 343-358.
  • Culiuc, A., & Kyobe, A. (2017). Structural reforms and external rebalancing. IMF Working paper, No. 182.
  • Easterly, W., & Rebelo, S. (1994). Fiscal policy and economic growth: an empirical investigation (No. 885). CEPR Discussion Papers.
  • Edwards, S., & Santaella, J. (1993). Devaluation controversies in the developing countries: lessons from the Bretton Woods era. In A retrospective on the Bretton Woods system: Lessons for international monetary reform (pp. 405-460). University of Chicago Press.
  • Ekeocha, P., & Ikenna- Ononugbo, A. (2017), Cost of governance and fiscal operations in Nigeria: Evidence from State Government data. Economic and Financial Review, 55(1), 80-98
  • Frankel, J., & Rose, A. (2002). An estimate of the effect of common currencies on trade and income. The quarterly journal of economics, 117(2), 437-466.
  • Greenspan, A. (1995). General Discussion: In: Budget Deficits and Debt: Issues and Options. Sborník ze sympozia pořádaného Federální rezervní bankou Kansas City, 140- 143.
  • Junttila, J., & Korhonen, M. (2011). Nonlinearity and Time- Variation in the Monetary Model of Exchange Rates. Journal of Macroeconomics 33, 288-302.
  • Jongwanich, J., & Kohpaiboon, A. (2013). Capital Flows and Real Exchange Rates in Emerging Asian Countries. Journal of Asian Economics 24, 138-146.
  • Okoye, L.U., Evbuomwan, G. O., Modebe, N. J., & Ezeji, F. N. (2016). Macroeconomic performance and government fiscal deficits - Evidence from Nigeria, Nigerian Journal of Management Technology and Development, 7(2), 1-8
  • Okoye, Lawrence U., Omankhanlen, A. E., Okorie, N., Ahmed, A., & Okoh, J. I. (2020). Economic Determinants of Deficit Financing in Nigeria. In: 33rd International Business Information Management Association Conference
  • Papanikos, G. T. (2015). The Real Exchange Rate of Euro and Greek Economic Growth. The Journal of Economic Asymmetries 12, 100-109.
  • Rose, A. K., & Stanley, T. D. (2005). A meta- analysis of the effect of common currencies on international trade. Journal of economic surveys, 19(3), 347-365.
  • Safdar, F., & Padda, I. U. H. (2017). Impact of institutions on budget deficit: The case of Pakistan, International Journal of Business and Management, 12(1), 77-88
  • Sidamor, Z., Lemtaouch, L., & Bensouici, H. (2016). The economic consequences of the political instability in Arab region. Procedia- Social and Behavioral Sciences, 219, 694-699.
  • Broz, J. L., & Frieden, J. A. (2006). The political economy of exchange rates. The Oxford handbook of political economy, 587, 591-96.
  • Steinberg, D., Walter, S., Social, Cultural,, Theories, E., & Models. (2013). The Political Economy of Exchange Rates. 2, 27-36.
  • Umoh, O. J., Onye, K. U., & Atan, J. A. (2018). Political and institutional determinants of fiscal policy persistence in West Africa, International Journal of Business and Management, 12(1), 77-88

Cite this article

APA

    APA : Nabi, G., Bhat, K., & Ghazanfar, F. (2021). Does Budget Deficit and Political Stability Effect Real Exchange Rate in South Asian Countries?. Global Management Sciences Review, VI(I), 26-38. https://doi.org/10.31703/gmsr.2021(VI-I).03

CHICAGO

    CHICAGO : Nabi, Ghulam, Kalimullah Bhat, and Faheem Ghazanfar. 2021. "Does Budget Deficit and Political Stability Effect Real Exchange Rate in South Asian Countries?." Global Management Sciences Review, VI (I): 26-38 doi: 10.31703/gmsr.2021(VI-I).03

HARVARD

    HARVARD : NABI, G., BHAT, K. & GHAZANFAR, F. 2021. Does Budget Deficit and Political Stability Effect Real Exchange Rate in South Asian Countries?. Global Management Sciences Review, VI, 26-38.

MHRA

    MHRA : Nabi, Ghulam, Kalimullah Bhat, and Faheem Ghazanfar. 2021. "Does Budget Deficit and Political Stability Effect Real Exchange Rate in South Asian Countries?." Global Management Sciences Review, VI: 26-38

MLA

    MLA : Nabi, Ghulam, Kalimullah Bhat, and Faheem Ghazanfar. "Does Budget Deficit and Political Stability Effect Real Exchange Rate in South Asian Countries?." Global Management Sciences Review, VI.I (2021): 26-38 Print.

OXFORD

    OXFORD : Nabi, Ghulam, Bhat, Kalimullah, and Ghazanfar, Faheem (2021), "Does Budget Deficit and Political Stability Effect Real Exchange Rate in South Asian Countries?", Global Management Sciences Review, VI (I), 26-38

TURABIAN

    TURABIAN : Nabi, Ghulam, Kalimullah Bhat, and Faheem Ghazanfar. "Does Budget Deficit and Political Stability Effect Real Exchange Rate in South Asian Countries?." Global Management Sciences Review VI, no. I (2021): 26-38. https://doi.org/10.31703/gmsr.2021(VI-I).03