UNDERSTANDING THE ASYMMETRIC EFFECTS OF EXCHANGE RATE ON ECONOMIC GROWTH: EVIDENCE FROM INDIA

Zakir Hossen Shaikh; Shah Husain; Mohammad Noor Alam; Imran Ali Baig; Minakshi Rana

doi:10.22437/jiituj.v9i2.42633

Authors

Zakir Hossen Shaikh Kingdom University https://orcid.org/0000-0003-4733-4166
Shah Husain Gitam School of Humanities and Social Sciences https://orcid.org/0000-0003-1128-9252
Mohammad Noor Alam University of Bahrain https://orcid.org/0000-0002-0015-7177
Imran Ali Baig Jamia Millia Islamia Central University https://orcid.org/0000-0002-2087-3621
Minakshi Rana National Institute of Technology https://orcid.org/0000-0002-2592-9962

DOI:

https://doi.org/10.22437/jiituj.v9i2.42633

Keywords:

Asymmetric Impact, Economic Growth, Exchange Rate Fluctuations, Granger Causality Test, Nonlinear Auto-Regressive Distributed Lag (NARDL)

Abstract

This study examines the short-term and long-term relationships between economic growth, exchange rate fluctuations, money supply, and government expenditure in India from 1980 to 2022. The study employs econometric techniques such as unit root tests, Nonlinear autoregressive distributed lag (NARDL) model, FMOLS & DOLS tests, and the Granger causality test is used to determine the direction of causal relationships. The data utilized in this study were collected from the Handbook of India’s Statistics (RBI) and World Development Indicators (WDI). The unit root tests indicate mixed order of integration for the selected variables. The results of the NARDL model confirm a long-term relationship among economic growth, exchange rate changes, money supply, and government expenditure. The findings indicate that undervaluation negatively affects economic growth in India, whereas overvaluation promotes it. Furthermore, the analysis reveals an asymmetric impact of exchange rate changes on economic growth. The Wald test further supports the presence of asymmetry in both the short-run and long-run. The causality test results show bidirectional causality between exchange rates, government expenditure, and economic growth, while unidirectional causality runs from money supply to economic growth. Based on the empirical findings, some policy implications may be suggested to the government. The exchange rate-controlling organization should emphasize restoring stability and pursue the establishment of a stronger exchange rate to achieve the goal of sustained economic growth and, ultimately, sustainable development

Downloads

Download data is not yet available.

Author Biographies

Zakir Hossen Shaikh, Kingdom University

Department of Finance and Accounting, College of Business Administration, Kingdom University, Bahrain

Shah Husain, Gitam School of Humanities and Social Sciences

Department of Economics, Gitam School of Humanities and Social Sciences, Hyderabad, India

Mohammad Noor Alam, University of Bahrain

Department of Accounting, College of Business Administration, University of Bahrain, Bahrain

Imran Ali Baig, Jamia Millia Islamia Central University

Department of Economics, Jamia Millia Islamia Central University, New Delhi, India

Minakshi Rana, National Institute of Technology

Department of Humanities & Social Sciences, National Institute of Technology, Uttarakhand, India

References

Ahmed, Q.M., Muhammad, S.D., Noman, M. and Lakhan, G.R. (2014), Determinants of recent inflation in Pakistan: revisit, Pakistan, Journal of Commerce and Social Science, 8, 170-184. http://www.jespk.net/publications/170-184.pdf

Albassam, B. A. (2022). Government spending and economic growth in the Middle East and North Africa region. International Review of Administrative Sciences, 88(4), 1124-1140.and Social Measurement, 40(1–4), 123–149. https://doi.org/10.1177/00208523211015279

Ansari, M. I., Gordon, D. V., & Akuamoah, C. (1997). Keynes versus Wagner: public expenditure and national income for three African countries. Applied Economics, 29(4), 543-550. https://doi.org/10.1080/000368497326678

Bahmani‐Oskooee, M., & Mohammadian, A. (2016). Asymmetry effects of exchange rate changes on domestic production: evidence from nonlinear ARDL approach. Australian Economic Papers, 55(3), 181-191. https://doi.org/10.1111/1467-8454.12079.

Bahmani-Oskooee, M., & Mohammadian, A. (2017). Asymmetry effects of exchange rate changes on domestic production in Japan. International Review of Applied Economics, 31(6), 774-790. https://doi.org/10.1080/02692171.2017.1291163

Bhat, J. A., & Bhat, S. A. (2022). On the dynamics of exchange rate pass-through: asymmetric evidence from India. International Journal of Emerging Markets, 17(8), https://doi.org/10.1108/IJOEM-04-2020-0411

Baig, I. A., Ali, M. S., Salam, A., & Khan, S. M. (2020). Agriculture, manufacturing and economic growth in India: a co-integration analysis. Journal of Economics and Business, 3(3). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3644729

Bin Liu, B (2002). Empirical research on the relationship among money supply, output and prices, Journal of Finance, 27(7), 10-16

Carrasco, M. (1998) Crowding out and government spending. University Avenue Undergraduate Journal of Economics 2: Article 1. https://digitalcommons.iwu.edu/uauje/vol2/iss1/1

Cottani, J. A., Cavallo, D. F., & Khan, M. S. (1990). Real exchange rate behavior and economic performance in LDCs. Economic Development and Cultural Change, 39(1), 61–76. https://doi.org/10.1086/451829

Elpianora, E., Berou, M., Kong, X., Hun, K., & Azadegan, E. (2024). Fourth order runge-kutta and gill methods in numerical analysis of predator-prey models. Interval: Indonesian Journal of Mathematical Education, 2(2), 164-177. https://doi.org/10.37251/ijome.v2i2.1366

Dilrukshini, W. A. (2009). Public expenditure and economic growth in Sri Lanka: Cointegration analysis and causality testing. Staff Studies, 34(1), 1–14.

Firmansyah, E., Baluta, I. B., & Elfaituri, K. (2024). The correlation between students’ problem-solving abilities and their mathematical thinking in high school mathematics education. Interval: Indonesian Journal of Mathematical Education, 2(2), 132-140. https://doi.org/10.37251/ijome.v2i2.1343

Ghura, D., & Grennes, T. J. (1993). The real exchange rate and macroeconomic performance in Sub-Saharan Africa. Journal of development economics, 42(1), 155–174. https://doi.org/10.1016/0304-3878(93)90077-Z.

Godley, W., & Lavoie, M. (2006). Monetary economics: an integrated approach to credit, money, income, production and wealth. Springer. https://doi.org/10.1057/9780230626546

Halimah, H., Putri, D. E., Wulandari, W., Adewumi, S. E., & Arce-Calderón, X. (2024). Contextual pop up book as an innovative learning media in social science subjects in elementary schools. Journal of Educational Technology and Learning Creativity, 2(2), 209-216. https://doi.org/10.37251/jetlc.v2i2.1121

Hammad Naeem, M., Subhan, M., Alam, M. S., Al-Faryan, M. A. S., & Yameen, M. (2023). Examining the role of financial innovation on economic growth: Fresh empirical evidence from developing and developed countries. Cogent Economics & Finance, 11(1), 2170000. https://doi.org/10.1080/23322039.2023.2170000

Hanoum, N. A., Villaverde, K., Saputra, Y., Nuhuyeva, Åəhla, & Ye, T. (2024). Design and development of tempe fermentation tool based on fuzzy method to determine tempe maturity level. Journal of Educational Technology and Learning Creativity, 2(2), 235-255. https://doi.org/10.37251/jetlc.v2i2.1418

Hasibuan, S., Chu, C. T., & Godh, W. A. (2024). Enhancing creative thinking in circle topics through the realistic mathematics learning approach. Interval: Indonesian Journal of Mathematical Education, 2(2), 106-114. https://doi.org/10.37251/ijome.v2i2.1148

Husain, S., & Asif, M. (2021). Asymmetric effects of fiscal deficit on inflation: Evidence from India. Indian Journal of Economics and Development, 17(4), https://doi.org/10.17485/IJED/v17i4.149

Husain, S., Baig, I. A., Asif, M., & Gupta, Y. (2023). Does Twin Deficit Hypothesis Exist in India? A Structural Break Co-Integration Analysis. Millennial Asia, 09763996231169136. https://doi.org/10.1177/09763996231169136

Hussain, I., Hussain, J., Ali Khan, A., & Khan, Y. (2019). An analysis of the asymmetric impact of exchange rate changes on GDP in Pakistan: application of non-linear ARDL. Economic research-Ekonomska istraživanja, 32(1), 3094-3111. https://doi.org/10.1080/1331677X.2019.1653217

Iwedi, M. (2016). The link between money supply and economic growth in Nigeria: An econometric investigation. IIARD International Journal of Economics and Business Management, 2(3), 42–51.

Joyce, J., & Kamas, L. (2003). Real and nominal determinants of real exchange rates in Latin America: Short-run dynamics and long-run equilibrium. Journal of Development Studies, 39(6), 155–182. https://doi.org/10.1080/00220380412331322741

Kapciu, R., Preni, B., Kalluci, E., & Kosova, R. (2024). Modeling inflation dynamics using the logistic model: insights and findings. Jurnal Ilmiah Ilmu Terapan Universitas Jambi, 8(1), 364–378. https://doi.org/10.22437/jiituj.v8i1.3260

Khan, M. A., Adil, M. H., & Husain, S. (2021). The impact of economic uncertainty, stock market uncertainty and monetary uncertainty on money demand in India. International journal of emerging market. https://doi.org/10.1108/IJOEM-07-2020-0770

Krugman, P., & Taylor, L. (1978). Contractionary effects of devaluation. Journal of International Economics, 8(3), 445–456. https://doi.org/10.1016/0022-1996(78)90007-7

Kumar, P. (2021). Balance of payment, money supply and exchange rate linkage in India. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3987193.

Lawal, A. I., Salisu, A. A., Asaleye, A. J., Oseni, E., Lawal-Adedoyin, B. B., Dahunsi, S. O., & Babajide, A. A. (2022). Economic growth, exchange rate and remittance nexus: Evidence from Africa. Journal of Risk and Financial Management, 15(6), https://doi.org/10.3390/jrfm15060235

Mansoor, A., Shoukat, Q., Bibi, S. H. A. G. U. F. T. A., Iqbal, K., Saeed, R. O. M. A. N. A., & Zaman, K. (2018). The relationship between money supply, price level and economic growth in Pakistan: Keynesian versus monetarist view. Review of Economic and Business Studies, 11(2), 49-64. https://doi.org/10.1515/rebs-2018-0072

Melinda, S., Feizi, F., & Monfared, P. N. (2024). Transforming religious learning with macromedia flash 8: Improving students’ understanding of the material on faith in the apostles. Journal of Educational Technology and Learning Creativity, 2(2), 201-208. https://doi.org/10.37251/jetlc.v2i2.1100

Mesagan, E. P., Osuji, E., & Agbonrofo, H. (2022). Comparative analysis of the growth impact of pollution and energy use in selected West African nations. Environmental Science and Pollution Research, 29(44), 66438-66449. https://doi.org/10.1007/s11356-022-20532-3

Mesagan, E. P., Alimi, O. Y., & Vo, X. V. (2022). The asymmetric effects of exchange rate on trade balance and output growth. The Journal of Economic Asymmetries, 26, e00272. https://doi.org/10.1016/j.jeca. 2022.e00272.

Miharja, M. A., Bulayi, M., & Triet, L. V. M. (2024). Realistic mathematics education: Unlocking problem-solving potential in students. Interval: Indonesian Journal of Mathematical Education, 2(1), 50-59. https://doi.org/10.37251/ijome.v2i1.1344

Mitchell, D.J. (2005). The Impact of Government Spending on Economic Growth, Backgrounder No. 1831. Washington: The Heritage Foundation. https://www.heritage.org/budget-and-spending/report/the-impact-government-spending-economic-growth

Mohamed Aslam, A.L.M. (2016). Impact of money supply on Sri Lankan economy: an econometric analysis. International Letters of Social and Humanistic Sciences, 67, 11-17. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3018650

Morley, B., & Perdikis, N. (2000). Trade liberalisation, government expenditure and economic growth in Egypt. The Journal of Development Studies, 36(4), 38-54. https://doi.org/10.1080/00220380008422642

Muis, A., Pholboon, M., & Kamali, A. N. (2024). Geomics as interactive geography learning media: a development study on environmental material in high schools. Journal of Educational Technology and Learning Creativity, 2(2), 192-200. https://doi.org/10.37251/jetlc.v2i2.1089

Mulyanti, R. Y., Wati, L. N., & Suhana, S. (2025). What factors influence the internationalization of small and medium enterprises (smes)? a gender-based approach. Jurnal Ilmiah Ilmu Terapan Universitas Jambi, 9(1), 253–272. https://doi.org/10.22437/jiituj.v9i1.38816

Mumtaz, S., & Ali, M. (2022). Impact of exchange rate and its volatility on domestic consumption in India and Pakistan. Journal of Public Affairs, 22(2), e2479. https://doi.org/10.1002/pa.2479

Nusair, S. A. (2017). The J-curve phenomenon in European transition economies: A nonlinear ARDL approach. International Review of Applied Economics, https://doi.org/10.1080/02692171.2016.1214109

Ono, S. (2012). Financial development and economic growth: Evidence from Russia. Europe-Asia Studies, 64(2), 247-256. https://doi.org/10.1080/09668136.2012.635484

Palley, T. I. (2013). Keynesian, classical and new Keynesian approaches to fiscal policy: Comparison and critique. Review of Political Economy, 25(2), 179-204. https://doi.org/10.1080/09538259.2013.775821

Patel, D., & Mah, G. (2018). Relationship between real exchange rate and economic growth: the case of South Africa. Journal of Economics and Behavioral Studies, 10(1 (J)), 146-158. https://doi.org/10.22610/jebs.v10i1(J).2098

Phibian, N. O. (2010). The quantity theory of money: Evidence from Nigeria. Economic and Financial Review, Central Bank of Nigeria. https://www.cbn.gov.ng/Out/2012/publications/reports/rsd/efr-2010/Economic%20and%20Financial%20Review%20Vol%2048%20No%202%2C%20June%202010/The%20Quantity%20Theory%20of%20Money.pdf

Pistaferri, L. (2015). Household consumption: Research questions, measurement issues, and data collection strategies. Journal of Economic and Social Measurement, vol. 40, no. 1-4, pp. 123-149, 2015. https://doi.org/0.3233/JEM-150401

Ram, R., (1986). Government Size and Economic Growth: A New Framework and Some Evidence from Cross-Section and Time-Series Data. American Economic Review, 76(l). https://doi.org/10.1257/aer.76.1.191

Rapetti, Martin. "The Real Exchange Rate and Economic Growth: A Survey" Journal of Globalization and Development, vol. 11, no. 2, 2020, pp. 20190024. https://doi.org/10.1515/jgd-2019-0024

Rodrik, D. (2008). The real exchange rate and economic growth. Brookings Papers on Economic Activity, 39(Fall 2008), 365–439. https://doi.org/10.1353/eca.0.0020

Samargandi, N., Kutan, A. M., Sohag, K., &Alqahtani, F. (2020). Equity market and money supply spillovers and economic growth in BRICS economies: A global vector autoregressive approach. The North American Journal of Economics and Finance, 51,101060. https://doi.org/10.1016/j.naj

Schick, A. (1998). A contemporary approach to public expenditure management (World Bank Institute WorkingPaperNo.68, pp. 2–111). World Bank. https://documents1.worldbank.org/curated/en/7390

Seraj, M., & Coskuner, C. (2021). Real exchange rate effect on economic growth: comparison of fundamental equilibrium exchange rate and Balassa–Samuelson based Rodrik approach. Journal of Applied Economics, 24(1), 541-554. https://doi.org/10.1080/15140326.2021.1977083

Sharma, R., Kautish, P., & Kumar, D. S. (2018). Impact of selected macroeconomic determinants on economic growth in India: An empirical study. https://doi.org/10.1177/0972262918803173

Shaik, K., & Gona, B. R. (2021). Exchange rate and the economic growth in India: An empirical analysis. Journal of Public Affairs, 21(2), e2177. https://doi.org/10.1002/pa.2177

Shaikh, Z. H., Irfan, M., Nomran, N. M., & Abey, J. (2024). DOES COVID-19 AFFECT SHARIAH COMPLIANT STOCK? EVIDENCE FROM SELECTED OIC COUNTRIES. Jurnal Ilmiah Ilmu Terapan Universitas Jambi, 8(2), 720–731. https://doi.org/10.22437/jiituj.v8i2.33159

Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In R. Sickles & W. Horrace (Eds.), Festschrift in Honor of Peter Schmidt (pp. 281-314). New York, NY: Springer. https://doi.org/10.1007/978-1-4899-8008-3_9

Stockman, A. C. (1980). A theory of exchange rate determination. Journal of Political Economy, 88(4), 673–698. https://doi.org/10.1086/260888.

Subhan, M., alharthi, M., alam, M. S., thoudam, P., & khan, K. (2021). Relationship between exports, economic growth and other economic activities in India: Evidence from VAR model. The Journal of Asian Finance, Economics and Business, https://doi.org/10.13106/jafeb.2021.vol8.no12.0271

Tobin, J. (1970). Money and income: post hoc ergo propter hoc? The Quarterly Journal of Economics, 84(2), 301-317. https://doi.org/10.2307/1883019.

Van, D. D. (2019). Money supply and inflation impact on economic growth. Journal of Financial Economic Policy. https://doi.org/10.1108/JFEP-10-2017-0093.

Wang Yan-liang. (2012). Relationship Research on Money Supply, Economic Growth and Inflation. Journal of Convergence Information Technology (JCIT). https://doi.org/10.4156/jcit.vol7.issue1.3

Wang, Y., Yu, H., Zhang, H., & Chen, T. (2021). Non-linear analysis of effects of energy consumption on economic growth in China: Role of real exchange rate. Economic Modelling, 104, 105623. https://doi.org/10.1016/j.econmod.2021.105623

Wijeweera, A., & Garis, T. (2009). Wagner’s law and social welfare: The case of the Kingdom of Saudi Arabia. Applied Econometrics and International Development, 9(2), 199-209. https://ideas.repec.org/a/eaa/aeinde/v9y2009i2_16.html

Wirnayanti, W., Craig, J., & Malatjie, J. F. (2024). Comparing the impact of problem solving vs. problem posing approaches on mathematics achievement in junior high school. Interval: Indonesian Journal of Mathematical Education, 2(2), 90-98. https://doi.org/10.37251/ijome.v2i2.1094

Zakiyah, Z., Boonma, K., & Collado, R. (2024). Physics learning innovation: song and animation-based media as a learning solution for mirrors and lenses for junior high school students. Journal of Educational Technology and Learning Creativity, 2(2), 183-191. https://doi.org/10.37251/jetlc.v2i2.1062

Zhu, W., Ahmad, F., Draz, M. U., Ozturk, I., & Rehman, A. (2022). Revisiting the nexus between exchange rate, exports and economic growth: further evidence from Asia. Economic research-Ekonomska istraživanja, 35(1), 7128-7146. https://doi.org/10.1080/1331677X.2022.2059692