Real Exchange Rate and Economic Growth in East Asian Countries: The Role of Financial Integration

Abstract

This study examines the role of financial integration in determining the relationship between the real exchange rate (RER) and economic growth in East Asian countries. It hypothesizes that a competitive RER could play a greater role in promoting economic growth in countries with a low degree of financial integration. A growth model was specified using a RER misalignment index and its interaction terms with financial integration as explanatory variables. Different proxies for financial integration were employed to verify the interaction. The empirical results demonstrate the significance of the interaction terms and largely validate the hypothesis. This result demonstrates that a competitive RER policy is not a general solution for economic growth and its effectiveness could largely depend on a country’s degree of financial integration.

Real Exchange Rate Misalignment and Economic Growth in Belt & Road Countries: The Role of Financial Integration

“…Moreover, as the model captures a linear relationship between RER misalignment and growth, the result also means that a higher degree of overvaluation reduces economic growth. These results are consistent with previous studies (Béreau et al, 2012;Bleaney & Greenaway, 2001;DAI et al, 2016;Gala, 2008;Hausmann et al, 2005;Razin & Collins, 2010). Similarly, inflow of FDI is proxy for the degree of financial integration, and an economy is considered to be highly financial integrated and open if its ratio of FDI inflow to GDP is high and it is supported by numerous studies (Abbas & Christensen, 2010;Mankiw, Romer, & Weil, 1992;Pattillo, Poirson, & Ricci, 2002).…”

“…Considering the conflicting results of previous studies; our study aims to investigate the relationship between undervaluation and growth by assuming that financial integration is an essential factor for the successful implementation of exchange rate policy (Dai et al, 2016). Based on Dai, Delpachitra, & Cottrell ( 2016); and Porcile & Lima (2010)'s models that explain the operation of the capital accumulation channel; this study proposes that the competitive RER effect on economic growth assumes to be robust in the BRI countries having low levels of financial integration. Unlike the previous studies that focus on the aggregate sample of countries; this study employ grouped and ungrouped data of BRI countries.…”

Does the Education, Health and Employment Determine the Economic Growth: A Case Study

“…Firstly, the general objective of this study is to examine the relationship between education, health, employment and economy growth in Thai during the period from 1982 -2010. The finding of the unit root test on the variables in this study consistent with the result of a number of previous study such as DAI, Delpachitra, Cottrell (2017) and Bedir (2016). The OLS test was conducted to test the relationship and the results shows that the education variables have positive relationship with the economy growth, which means when the economy growth increase, the education or literacy rate in Thai also will increase.…”

A Statistical Analysis of Cryptocurrencies

“…Here, we mention seven of the most recent papers: Corlu and Corlu (2015) compare the performance of the generalized lambda distribution against other flexible distributions such as the skewed t distribution, unbounded Johnson family of distributions, and the normal inverse Gaussian distribution, in capturing the skewness and peakedness of the returns of exchange rates. They conclude that for the Value-at-Risk and Expected Shortfall, the generalised lambda distribution gives a similar performance, and in general it can be used as an alternative for fitting the heavy tail behaviour in financial data; Nadarajah et al (2015) revisit the study of exchange rate returns in Corlu and Corlu (2015), and show that the Student's t distribution can give a similar performance to those of the distributions tested in Corlu and Corlu (2015); Bruneau and Moran (2017) investigate the effect of exchange rate fluctuations on labour market adjustments in Canadian manufacturing industries; Dai et al (2017) examine the role of exchange rates on economic growth in east Asian countries; Parlapiano et al (2017) examine exchange rate risk exposure on the value of European firms; Schroeder (2017) investigates the macroeconomic performance in developing countries with respect to exchange rates; Seyyedi (2017) provides an analysis of the interactive linkages between gold prices, oil prices, and the exchange rate in India.…”