Research Paper on Panel Data Approach for SADC: Exchange Rate Volatility, Inflation, and Economic Growth in Developing Countries

Description

Title: Panel Data Approach for SADC: Exchange Rate Volatility, Inflation, and Economic Growth in Developing Countries

Abstract: Because of the historical precedent and the economic clustering of member nations, the relationships between exchange rate instability, inflation, and economic growth remain at the forefront of economic discussion in the Southern African Development Community. Regarding the complexity, complementarity, or substitutability of inflation and exchange rate instability on economic growth for SADC countries, however, little is known. This article looked at the impact of exchange rate volatility on the region’s inflation-growth nexus from 2000 to 2018. In order to accomplish the study’s objectives, three major analytical techniques—Pooled Mean Group (PMG), Generalized Moments (GM), and Dynamic Fixed Effect (DFE)—were used. However, the Hausman test chose the Pooled Mean Group estimator of the Panel Autoregressive Distributed Lag as the primary instrument. Additionally, the GARCH (1, 1) was used to create volatility in exchange rates. The study’s conclusions demonstrated a link between inflation and exchange rate volatility and the region’s slow economic growth. Further findings provide evidence that the region’s economic growth is negatively impacted by the knock-on effects of exchange rate instability on inflation: the more volatile the exchange rate, the worse the region’s inflationary-growth relationship. This supports the menu cost theory of price setting, which states that the exchange rate pass-through effect occurs more quickly the higher the rate of inflation. Therefore, it is advised that member countries give priority to policies that will ensure local currencies appreciate.

Keywords: panel data; economic growth; transitional economies; inflation

Paper Quality: SCOPUS / Web of Science Level Research Paper

Subject: Economics

Writer Experience: 20+ Years

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