Impact of Corruption on Exchange Rate: Empirical Evidence from Panel Data

Abstract

Purpose- This study examines the economic cost of exchange rate. Pakistan has been facing serious issue in regard of exchange rate and this fluctuations impact on various economic indicators or variables. The overall exchange rate value is being depreciated since 2008, it started from Rs 60 against one dollar and recently it reached to Rs, 134 that are equal to one dollar.
 Design/methodology/approach- Time series panel data from 2002-2016 has been used for analysis, it has two cross-sections Pakistan and India. Data is collected from various sources that include Asian Development Bank, Transparency International US and World Economic Indicators. Exchange rate in Pak rupees and Ind rupees, corruption perception index in percentage and foreign borrowings in both Pak rupees and Ind rupees’ variables are taken for analysis. Data will be analyzed through statistical techniques which comprises panel unit root test and panel regression analysis in E-views version 7.
 Findings- Based on predictable results, all studied variables are found to have significant and positive impact on real exchange rate.
 Originality/value- In previous studies research scholars investigated overall exchange rate impact on GDP of any economy. This study gives insight into real exchange rate impact on government department corruption of both countries Pakistan and India. This study can be extended to other less developed countries which are also facing problem of exchange rate in their respective countries.

Ere Outbreak in Malaysia: Macroeconomic Factors and Variability in Exchange Rates

“…This is due to both studies using different currencies and samples of data where Hua (2007) uses the renminbi currency while Demir (2010) uses the Lira currency according to each country. The study on corruption also contradicted the results of Bahmani & Nasir (2002), maybe due to different samples of data being more widely consisting of 65 countries and Sohu et al (2019), using different currencies such as Pakistan and Indian rupees.…”

“…Based on the data for corruption rate that is collected from International Country Risk while for productivity is collected from Penn World Table, findings show a country experiencing a high degree of corruption or less law, and order tends to experience a real depreciation in their currency. Moreover, Sohu et. al (2019), study on the impact of corruption on the exchange rate in Pakistan using the time series panel data from the year 2002 until 2016, results show CPI have a significant effect on the real exchange rate.…”

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“…Similarly, Blomberg & Hess (1997) showed that introducing political variables to exchange rate models improves forecasting significantly in comparison to the random walk models. A very recent empirical study by Sohu et al (2019) concluded that the perception of corruption was related to the depreciation of the currencies of India and Pakistan. Kaiser (1997) investigated the impact of news on social expectations as Germany was joining the European Monetary Union.…”

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