Impact of Currency Devaluation on Economic Growth: Evidence from Pakistan

Tayyab  Khan; Ayesha Khan; Long Wei; Sundas Ayub; Jie Wang; Junaid Ahmad Zia

doi:10.52633/jms.v4i2.215

Authors

Tayyab Khan School of Economics, Wuhan University of Technology, Wuhan 430070, China. Author
Ayesha Khan Wuhan University of Technology Author
Long Wei Wuhan University of Technology Author
Sundas Ayub Shandong University Author
Jie Wang Fujian Normal University Author
Junaid Ahmad Zia Shihezi University Author

DOI:

https://doi.org/10.52633/jms.v4i2.215

Keywords:

Currency Devaluation, Economic Growth, Cointegration, Pakistan

Abstract

This study examines the impact of currency devaluation on Pakistan's economic growth. Currency devaluation is controversial topics for both developing and developed economies to believe and hope to improve economic growth. In this study, the model used to find the cointegration between variables. The annual time series data over1990 to 2018, together with ARDL model and Johansson cointegration model used to test whether there is a long-run relationship between economic growth and currency devaluation. Both proposed models indicate that the devaluation of Pakistan’s currency has no significant impact on the long-run changes in economic growth. However, Interest rates and gross capital formation are positive correlated with economic growth in the long run. Currency devaluation is a cure for balance of payment, enhances the competitiveness of the international market and promotes trade balance. Due to some political instability, macroeconomic and environmental conditions in a country, cure is sometimes worse than disease. The paper recommends making the Pakistan economy a sustainable, easy and friendly business environment and looking closer at the economic indicators to make Industrial economic policy. Government must make a good policy for industrialization, instead of currency devaluation, Pakistan industrial sector has a potential to improve the economy, and the authorities should need to create an easy and friendly environment for foreigner business and investors. In addition, allow currency freely to depreciate through market force and efficient money market system, official’s devaluation should be discouraged.

Author Biographies

Tayyab Khan, School of Economics, Wuhan University of Technology, Wuhan 430070, China.

School of Economics, Wuhan University of Technology, Wuhan 430070, China.
Ayesha Khan, Wuhan University of Technology

She is studying economics at school of economics, Wuhan University of Technology
Long Wei, Wuhan University of Technology

Professor at school of economis, Wuhan University of Technology
Sundas Ayub, Shandong University

She did PhD. from Centre for Economic Research, Shandong University, Jinan, China.
Jie Wang, Fujian Normal University

She is doing PhD. at School of Economics, Fujian Normal University, Fuzhou, China.
Junaid Ahmad Zia, Shihezi University

He is studying at School of Economics and Management, Shihezi University, Shihezi, China.

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