Economics at your fingertips  

Political Risk and Real Exchange Rate: What Can We Learn from Recent Developments in Panel Data Econometrics for Emerging and Developing Countries?

Mohsen Bahmani-Oskooee (), Thouraya Hadj Amor (), Ridha Nouira () and Christophe Rault ()
Additional contact information
Thouraya Hadj Amor: Monastir University, Tunisia
Ridha Nouira: Monastir University-Tunisia

Journal of Quantitative Economics, 2019, vol. 17, issue 4, No 3, 762 pages

Abstract: Abstract This paper focuses on the analysis of the long-run response of the real exchange rate (RER) to political risks and tests whether non-economic variables have an impact on RER in 31 emerging and developing countries. We use annual data from the International Country Risk Guide database over the 1984–2016 period. Based on the recently developed method of cross-sectionally augmented ARDL approach of Chudik and Pesaran (J Econ 188:393–420, 2015b), and the panel threshold estimation of Chudik et al. (Rev Econ Stat 99(1):135–150, 2017) our main findings are the following: (1) countries experiencing a high degree of corruption, a high risk to investment, or a high degree of political instability tend to experience a real exchange rate depreciation, (2) there exists strong evidence for a threshold effect on the relationship between investment profile-RER, corruption-RER and political instability-RER. Specifically, political instability and corruption adversely affect real exchange rate especially when they exceed the threshold. (3) The effects of bureaucracy, law, and order seem to be statistically insignificant on the RER. Our findings are robust to the inclusion of the Balassa–Samuelson effect in the estimated equations.

Keywords: Real exchange rate; Political instability; Institutional quality; Cross-sectionally augmented ARDL; Threshold effects; Emerging and developing countries (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from

DOI: 10.1007/s40953-018-0145-4

Access Statistics for this article

Journal of Quantitative Economics is currently edited by Dilip Nachane and P.G. Babu

More articles in Journal of Quantitative Economics from Springer, The Indian Econometric Society (TIES) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

Page updated 2021-04-20
Handle: RePEc:spr:jqecon:v:17:y:2019:i:4:d:10.1007_s40953-018-0145-4