Government spending and the exchange rate: Exploring this relationship in Mexico using a cointegrated system of equations

Cruz, Moritz; Sánchez-Vargas, Armando

doi:10.1111/rode.12834

Cited by 3 publications

(2 citation statements)

References 25 publications

(30 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…At the same time, public expenditures are mostly made for goods produced in a certain country, thus leading to a growth in the demand for national goods in relation to imported ones, stimulating competitiveness through the real appreciation of the exchange rate. This is the main output obtained in several empirical works (Di Giorgio et al, 2018;Cruz & Sánchez-Vargas, 2022). The opposite result of increasing competitiveness implies that, through public spending, fiscal policy leads to a decrease in competitiveness (Médici et al, 2021).…”

Section: Introductionmentioning

confidence: 83%

Competitiveness, fiscal policy and corruption: evidence from Central and Eastern European countries

Ţigănaşu

Pascariu

Lupu

2022

View full text Add to dashboard Cite

Research background: The transformations induced by global challenges call for new approaches towards competitiveness and thus require a consistent rethinking of strategies and mechanisms so that they could be better adapted to the constantly changing context. Prior to the European Union (EU) accession, the Central and Eastern European (CEE) states began a broad process of economic reforms, including trade liberalization, mass privatization, exchange rate liberalization, all of which led to a wider opening to new markets, the creation of new opportunities for production and to ensuring the competitiveness of companies on foreign markets. By far, the most important step in the post-communist period was joining the EU, achieved after 2004. Over time, these states have faced, on the one hand, issues related to addressing systemic vulnerabilities, and on the other hand, finding the most appropriate measures to induce competitiveness. The influence of public policies on competitiveness is still an issue that needs to be debated, our study proposing to examine the reaction of external competitiveness to the increase of government spending and corruption. Purpose of the article: The aim of this paper is to analyze the impact of fiscal policies and corruption on the external competitiveness of the eleven countries from Eastern Europe (Bulgaria, Croatia, Czechia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia) for the period 1995?2020. The choice of this time interval is to better capture the trinomial relationship between competitiveness, fiscal policy and corruption before and after the process of integration of the CEE states into the EU. Methods: The methodology chosen is based on ARDL (Autoregressive Distributed Lag) with structural breaks, the period taken into account being 1995?2020. The Unit root test of augmented Dickey?Fuller ADF (2016) was used to assess the time series stationarity. The test developed by Bai and Perron (2003) is applied to detect structural breaks, by resorting to the LM test. The tests for the cointegration between the considered variables, using the ARDL model, proposed by Pesaran et al. (2001), were also part of the research. The causality test of Granger et al. (2000) was used to assess the conditionality between the indicators. By applying these methods, it was highlighted that, especially after 2007, in the states under analysis, expansionary fiscal policies have led to internal devaluations of the currency, which ultimately increased external competitiveness, measured as real effective exchange rate. Instead, corruption has a negative impact on competitiveness. Findings & value added: The obtained results point out the relationship between competitiveness, fiscal policy and corruption in CEE countries. In the case of those that have a high competitiveness, even if there are large government expenditures, there is also an economic environment conducive to the implementation of measures that generate added value on a large scale. Conversely, in countries where corruption is high, the impact of government fiscal policies on competitiveness is reduced due to the negative effects caused by this phenomenon. Our study brings at least two contributions to the literature. First of all, the research shows how a growth in public spending affects the competitiveness of CEE economies through the real exchange rate. Secondly, it takes into account the phenomenon of corruption applied to Eastern countries, emphasizing a decrease in the external competitiveness of these economies in response to the manifestation of corruption.

show abstract

Section: Introductionmentioning

confidence: 83%

Competitiveness, fiscal policy and corruption: evidence from Central and Eastern European countries

Ţigănaşu

Pascariu

Lupu

2022

View full text Add to dashboard Cite

show abstract

“…Neoclassical economists posit that government consumption expenditure on goods and services affect both the output and investment. Moritz and Armando (2021) examined the relationship between government spending and exchange rate in Mexico for the period 1990-2018, using the techniques of autoregressive distributed lag (ADL). Their finding showed that a rise in government consumption leads to a marginal depreciation in the nominal exchange rate.…”

Section: Government Final Consumption Expenditure and Exchange Rate R...mentioning

confidence: 99%

Evaluating the Determinants of Exchange Rates in Emerging Markets: Evidence from Nigeria and South Africa

C.I.,

J.O.,

C.T.

et al. 2023

African Journal of Economics and Sustainable Development

View full text Add to dashboard Cite

This paper evaluates empirically the determinants of exchange rates in emerging markets, with emphasis on Nigeria and South Africa during the period 2001-2020. By applying the pooled OLS regression method on both panel data and countries as subsamples, the study finds out that under the panel level, inflation rate, government final consumption expenditure and broad money had a negative effect on exchange rate, and that only government final consumption expenditure effect was significant. On the other hand, real interest rate, current account balance, economic health, GDP per capita, gross capital formation, and trade had positive effects on exchange rate, but only the effects of economic health, gross domestic product per capita, and gross capital formation were significant. For Nigeria, inflation rate and GDP per capita had negative non-significant effect on exchange rate, while the economic health had a negative significant effect on exchange rate; consequently, real interest rate, current account balance, gross capital formation, trade, government final consumption expenditure, and broad money had positive non-significant effect on exchange rate. For South Africa, inflation rate, economic health, and gross capital formation had negative non-significant effect on exchange rate, meanwhile government final consumption expenditure and broad money had negative significant effect on exchange rate; in addition, real interest rate, current account balance, and trade had positive non-significant effect on exchange rate, while GDP per capita had positive significant effect on the exchange rate.

show abstract

Fiscal policy and real exchange rate variations in India

Maitra,

Ganguli

2024

Eurasian Econ Rev

View full text Add to dashboard Cite

Government spending and the exchange rate: Exploring this relationship in Mexico using a cointegrated system of equations

Cited by 3 publications

References 25 publications

Competitiveness, fiscal policy and corruption: evidence from Central and Eastern European countries

Competitiveness, fiscal policy and corruption: evidence from Central and Eastern European countries

Evaluating the Determinants of Exchange Rates in Emerging Markets: Evidence from Nigeria and South Africa

Fiscal policy and real exchange rate variations in India

Contact Info

Product

Resources

About