EXCHANGE RATE MISALIGNMENT AND ECONOMIC GROWTH: EVIDENCE FROM PAKISTAN'S RECENT FLOAT

Muhammad Zakaria ()
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Muhammad Zakaria: Department of Economics, Quaid-i-Azam University, Islamabad, Pakistan

The Singapore Economic Review (SER), 2010, vol. 55, issue 03, 471-489

Abstract: The paper empirically evaluates growth effects of real exchange rate misalignments in Pakistan for the flexible exchange rate period (1983Q1 to 2005Q4). First, real exchange rate misalignment is calculated as the deviation of the actual real exchange rate from its equilibrium value. It is found that the actual real exchange rate in Pakistan remained undervalued. Second, using the GMM estimation technique, it is found that undervaluation of the Pak-rupee has improved output growth in Pakistan and this result is robust to alternative growth equation specifications. The results also stress the role of other factors in determining output growth rate; particularly, capital per worker, democracy, corruption, human capital and deeper financial markets have the theoretical predicted signs and are statistically significant.

Keywords: Real exchange rate; misalignment; output growth; C13; C22; F41; O41 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (3)

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DOI: 10.1142/S0217590810003857

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