REAL EXCHANGE RATE AND ECONOMIC GROWTH IN EAST ASIAN COUNTRIES: THE ROLE OF FINANCIAL INTEGRATION

Pham van Dai, Sarath Delpachitra and Simon Cottrell ()
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Pham van Dai: Vietnam Institute for Economic and Policy Research, 144 Xuan Thuy Street, Cau Giay, Hanoi, Vietnam
Sarath Delpachitra: UTS Business School 14-28, Ultimo Rd, Ultimo, NSW 2007, Australia
Simon Cottrell: Flinders Business School, Flinders University, Adelaide 5001, Australia

The Singapore Economic Review (SER), 2017, vol. 62, issue 01, 163-177

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.

Keywords: Real exchange rate misalignment; economic growth; financial integration; East Asian countries (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0217590816500168

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