NEXUS BETWEEN EXCHANGE RATE VOLATILITY AND ECONOMIC GROWTH: A CROSS COUNTRY COMPARISON OF SELECTED SOUTH ASIAN COUNTRIES

Abstract

The present study is an attempt to examine the impact of exchange rate volatility on economic growth rate of selected South Asian Countries. A cross country comparative analysis is being conducted for Pakistan, Bangladesh, India, Bhutan, Maldives, Nepal and Sri Lanka using annual data from the year 1970 to 2013. The exchange rate volatility is captured through EGARCH model. The OLS regression and ARDL approach of co-integration is employed to find out the empirical evidence. The results of the study are different with respect to countries, for most of the countries the results show the negative impact of exchange rate volatility on economic growth rate, while economic growth rate of few countries is not affected by exchange rate volatility. Moreover, the Nepal economic growth rate is positively affected through exchange rate volatility. In comparative analysis, the study indicates that the Bhutan economic growth rate suffers more from the instability of exchange rate.