Impact of Corruption on Exchange Rate:Empirical Evidence from Panel Data

This study examines the economic cost of exchange rate. Pakistan has been facing serious issue in regard of exchange rate and this fluctuations impact on various economic indicators or variables. The overall exchange rate value is being depreciated since 2008, it started from Rs 60 against one dollar and recently it reached to Rs, 160 that are equal to one dollar. Corruptionhas been one of the major problems faced by the countries especially that of developing countries like India and Pakistan and has affected their economy badly due to reliance of both countries on dollar and heavy imports. Timeseries panel data from 2002-2016 has been used for analysis, it has two cross-sections Pakistan and India. Data is collected from various sources that include Asian Development Bank, Transparency International USand World Economic Indicators. Exchange rate in Pak rupees and Ind rupees, corruption perception index in percentage and foreignborrowings in both Pak rupees and Indrupees’ variables are taken for analysis. Data will be analyzed through statistical techniques which comprises panel unit root testand panelregression analysis in E-viewsversion 7. Based on predictable results, all studied variablessuch as corruption perception indexand foreign borrowingsare found to have significant and positive impact on real exchange rate. Inprevious studies research scholars investigated overall exchange rate impact on GDP of any economy. This study gives insight into real exchange rate impact on government department corruption of both countries Pakistan and India.This study can be extended to other less developed countries which are also facing problem of exchange rate in their respective countries.