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Currency devaluation and output growth: new evidence from panel data analysis

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  • Dimitris Christopoulos

Abstract

Using panel data unit root tests and panel cointegration tests including Johansen maximum likelihood cointegration tests, as well as estimation techniques appropriate for heterogeneous panels such as fully modified OLS, this study examines the effect of currency devaluation on output expansion in a sample of eleven Asian countries over the period 1968-1999. The results suggest that, in the long run, output growth is affected by currency devaluation in the majority of countries under examination and in the panel as a whole. This finding stands at variance with other recent studies, which concluded that devaluation does not exert any important influence on aggregate output.

Suggested Citation

  • Dimitris Christopoulos, 2004. "Currency devaluation and output growth: new evidence from panel data analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 11(13), pages 809-813.
  • Handle: RePEc:taf:apeclt:v:11:y:2004:i:13:p:809-813
    DOI: 10.1080/1350485042000254647
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    References listed on IDEAS

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    1. Peter C. B. Phillips & Bruce E. Hansen, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," Review of Economic Studies, Oxford University Press, vol. 57(1), pages 99-125.
    2. Chou, Win Lin & Chao, Chi-Chur, 2001. "Are currency devaluations effective? A panel unit root test," Economics Letters, Elsevier, vol. 72(1), pages 19-25, July.
    3. Krugman, Paul & Taylor, Lance, 1978. "Contractionary effects of devaluation," Journal of International Economics, Elsevier, vol. 8(3), pages 445-456, August.
    4. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    5. Gylfason, Thorvaldur & Risager, Ole, 1984. "Does devaluation improve the current account?," European Economic Review, Elsevier, vol. 25(1), pages 37-64, June.
    6. Thorvaldur Gylfason & Michael Schmid, 1983. "Does Devaluation Cause Stagflation?," Canadian Journal of Economics, Canadian Economics Association, vol. 16(4), pages 641-654, November.
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    Cited by:

    1. Matesanz Gómez, David & Ortega, Guillermo J., 2005. "Economic growth and currency crisis: A real exchange rate entropic approach," MPRA Paper 211, University Library of Munich, Germany, revised 2006.
    2. Acharya, Sanjaya, 2010. "Potential impacts of the devaluation of Nepalese currency: A general equilibrium approach," Economic Systems, Elsevier, vol. 34(4), pages 413-436, December.
    3. repec:mbr:jmonec:v:8:y:2013:i:2:p:1-22 is not listed on IDEAS
    4. BAHMANI-OSKOOEE, Mohsen & Mohammadian, Amirhossein, 2017. "On the Relation between Domestic Output and Exchange Rate in 68 Countries: An Asymmetry Analysis," MPRA Paper 82939, University Library of Munich, Germany, revised 05 Apr 2017.
    5. Muhammad Shahbaz & Faridul Islam & Naveed Aamir, 2012. "Is devaluation contractionary? Empirical evidence for Pakistan," Economic Change and Restructuring, Springer, vol. 45(4), pages 299-316, November.
    6. repec:kap:ecopln:v:51:y:2018:i:2:d:10.1007_s10644-017-9201-x is not listed on IDEAS
    7. Zakee SAADAT & Dawood MAMOON, 2016. "Destination EU and USA: Improving Export Potential of Pakistan by Trading with India," Journal of Economics and Political Economy, KSP Journals, vol. 3(4), pages 659-669, December.
    8. repec:eee:rujoec:v:1:y:2015:i:3:p:217-239 is not listed on IDEAS
    9. Tatiana Evdokimova & Pavel Trunin & Andrei Zubarev, 2013. "The Impact of the Real Ruble Exchange Rate on the Economic Activity in Russia," Research Paper Series, Gaidar Institute for Economic Policy, issue 165P, pages 164-164.
    10. M Bahmani-Oskooee & I Miteza, 2006. "Stock Market Growth: An analysis of cointegration and causality," Economic Issues Journal Articles, Economic Issues, vol. 11(1), pages 37-64, March.
    11. repec:hur:ijarbs:v:7:y:2017:i:11:p:1284-1293 is not listed on IDEAS
    12. repec:bpj:glecon:v:13:y:2017:i:1:p:6:n:7 is not listed on IDEAS
    13. Mashkoor, Asim & Ahmed, Ovais & Herani, Dr. Gobin, 2015. "The relationship between Foreign Currency trading and Economic Development: A case Study of Pakistan," MPRA Paper 64482, University Library of Munich, Germany.
    14. Abdulnasser Hatemi-J & Manuchehr Irandoust, 2006. "The response of industry employment to exchange rate shocks: evidence from panel cointegration," Applied Economics, Taylor & Francis Journals, vol. 38(4), pages 415-421.

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