The Asymmetric Indirect Impact of Real Exchange Rate on Economic Growth through Foreign Trade: An Asymmetric ARDL Panel Model

Abstract

This paper aims to examine the combined effect of trade openness and real exchange rate on economic growth. We use an asymmetric ARDL panel model on a sample of Middle Eastern and North African (MENA) countries with data from 1990 to 2018. The results of the linear model prove, for the long-run component, that all variables, except government consumption, are significant. In addition, the interaction term between trade openness and the real exchange rate is negative and has a significant impact on economic growth at the 5% level. The results of the short-run component show that all variables are significant. The error correction adjustment coefficient is, however, negative but not significant. As a result, the linear model cannot be used to adjust the variables of the short-run dynamic to long-run equilibrium. The findings of the nonlinear model point to a positive and significant asymmetric effect of the interaction variable for both upward and downward movements on the economic growth in the long run. In other words, the findings of the study suggest that trade openness and real exchange rate need to be combined to enhance GDP growth. The results of the nonlinear short run component show that the impact of the interaction term between trade openness and real exchange rate on economic growth is significantly negative for both positive and negative variations. Contribution/Originality:This study is one of very few studies that have investigated the combined effect of trade openness and real exchange rate on economic growth. Additionally, this is the first study in which the asymmetric nonlinear ARDL model is used to analyze the relationship between these variables in MENA countries.

Productivity nexus economic growth in Sub-Saharan Africa: Panel ARDL and GMM Approaches

“…The remarkable point of empirical results of this research are more or less similar to the study by and Qamruzzaman and Wei (2019) employing GMM which tried to figure a positive and negative shock in financial inclusion on stock market development and Pang et al, (2022) that found to be inverted U-shaped effect of urbanization on shadow economy in terms of symmetric and asymmetric short-run and long-run analysis. These results also are somehow similar to the studies by Barguellil (2021) and Mujtaba & Jena (2021) and (Mujtaba, et al, 2022) using the NARDL model which attempted to investigate the impact of Carbon dioxide emissions on economic growth and the energy consumption and population on the environmental quality. However, the uniqueness of this study is to test the harmonization results obtained by ARDL and GMM both symmetrically and asymmetrically growth analysis in the short-run and long-run.…”

“…The study in Barguellil (2021) used an asymmetric ARDL panel model with the data over the period of 1990 to 2018 for the Middle East and North African countries. The findings showed that the nonlinear model pointed out that there was a positive and significant asymmetric effect of the interaction variable for both upward and downward movements on the economic growth in the long run.…”