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Linkages between exchange rate and economic growth in Pakistan (an econometric approach)

Author

Listed:
  • Qaiser Aman

    (Qurtuba University of Science & I.T)

  • Irfan Ullah

    (Gomal University)

  • Muhammad Imran Khan

    (Qurtuba University)

  • Saif-ud-Din Khan

    (Qurtuba University)

Abstract

Exchange rate has remained a debatable issue in association with economic growth; a very little common consensus could be developed amongst policy makers and economists. There is no unambiguous theoretical evidence which explains the impact of exchange rate on economic growth; in fact, both theories and evidences are diverging. Most of the theories are emphasizing on explaining indirect relation between exchange rate and economic growth as exchange rate stimulates growth in terms of exports, investment and foreign direct investment (FDI). This study is an attempt to explore the relationship between exchange rate and economic growth in Pakistan for period 1976–2010. Using simultaneous equation model, employing two, three stage least square (2SLS and 3SLS) techniques and found that exchange rate has a positive association with economic growth through the channel of export promotion incentives, enlarging the volume of investment, enhancing FDI inflow and promoting import substitute industry. Although, exchange rate is positively affecting economic growth, yet it can’t be used as a policy tool.

Suggested Citation

  • Qaiser Aman & Irfan Ullah & Muhammad Imran Khan & Saif-ud-Din Khan, 2017. "Linkages between exchange rate and economic growth in Pakistan (an econometric approach)," European Journal of Law and Economics, Springer, vol. 44(1), pages 157-164, August.
    • Handle: RePEc:kap:ejlwec:v:44:y:2017:i:1:d:10.1007_s10657-013-9395-y
    DOI: 10.1007/s10657-013-9395-y
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    References listed on IDEAS

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    Cited by:

    1. La Saidi & Pasrun Adam & Rostin & Zainuddin Saenong & Muh. Yani Balaka & Gamsir & Asmuddin & Salwiah, 2017. "The Effect of Stock Prices and Exchange Rates on Economic Growth in Indonesia," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 527-533.
    2. Ruwan Jayathilaka & Rishani Rathnayake & Bhakthi Jayathilake & Thanuja Dharmasena & Dananja Bodinayake & Deumi Kathriarachchi, 2023. "Exploring the growth direction: the impact of exchange rate and purchasing managers index on economic growth in Sri Lanka," Quality & Quantity: International Journal of Methodology, Springer, vol. 57(3), pages 2687-2703, June.

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    More about this item

    Keywords

    Exchange rate; Economic Growth; Simultaneous equation model;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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