Political Stability and Balance of Payment: An Empirical Study in Asia

Abstract

This study analyze that influences of political stability on balance of payment and relative importance of political stability and economic freedom for healthy of balance of payment and exchange rate stability. Political stability has an important role in determination of healthy of balance of payment than economic freedom. This study focus on selected 10 Asian countries of various income levels and test the factor of political stability and economic freedom in stability of balance of payment by using a simple econometric model with various techniques. Our empirical finding shows that political stability is more important than economic freedom in stabilizing balance of payment. Stable political regime with visionary leadership leads the nations to higher level of favorable balance of payment. Political stability is playing major role than theoretical explanation to achieve surplus of balance of payment hence exchange rare stability. Surplus of trade balance, foreign direct investment and higher international reserves hence appreciation of Yuan in china mostly depends on its long term political stability under one party political system rather than pure theoretical determination of balance of payment. Attaining of political stability before economic freedom is policy implication of this study to achieve international financial stability.

Arab Revolutions and Beyond

“…Since the 1960s and with the enlargement and augmentation of political risks due to confiscation, expropriation and nationalisation acts along with the widespread phenomenon of political instability in several countries and its negative economic impacts, initial attempts took place to quantify and clarify the concept of political instability as a main factor affecting macroeconomic environment. Accordingly, economists produced ample literature documenting the negative effects of political instability on a wide range of macroeconomic variables including, Gross Domestic Product (GDP) growth, private investment, balance of payments and inflation (Ali et al, 2008;Aisen and Veiga, 2012).…”

A Study of Political Stability in Malaysia: A Study about National Civilian Perception

“…Stable political regime with visionary leadership leads the nation to a higher level of favorable balance of payment. It makes a healthy economic environment to achieve stability of balance of payment (Ali, Tan, Selvarathnam, Xu & Saboor, 2008). Further economic policy and policy makers have to pay more attention on the political factors to achieve macro stability than economic factors.…”

“…Singapore, China and Malaysia are good examples for these arguments. India, Sri Lanka, Philippines and Pakistan are good example for that how a political instability with multi party political system negatively affects and destroy the macro economic stability, especially stability of balance of payment and external value of currency (Ali, Tan, Selvarathnam, Xu & Saboor, 2008). Base on the research of Marija Dzunic, the correlation coefficient between economic growth, the policy of economic reforms and political liberalization is rather high, showing that the countries with the highest index of democratization have realized the highest growth rates.…”

“…Leadership is a vital role to manage a country that brought peaceful for a country. One party political system or authoritarian political regime with visionary leadership is more favorable to achieve stability of balance of payment as well as other macro economic objectives (Ali, Tan, Selvarathnam, Xu & Saboor, 2008). Regarding to the research of Geoffrey Evan and Mansur Laljee, they have assumed that talking politics at least sometimes involves talking about issues like social inequality and law and order.…”

An Appraisal of Foreign Exchange Resources Generation and Management

“…• To review and appraise foreign exchange resources generation in Nigeria during and after SAP • To identify the problem areas of foreign exchange resources generation and management in Nigeria Literature review: As it was rightly observed by Ali et al (2008) that management of foreign exchange resources requires two activities: the generation of foreign exchange through export and the allocation of resources so generated to produce the optimum level of development. In addition to this, foreign exchange can further be generated through loan and investment.…”