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.
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.
Budget Deficit, Political Stability, Exchange Rate